P/B zero

CFA Level II
#1

P/B = (ROE-g) / (r-g) = (1-b) x ROE / (r-g) If b=1 (retain 100% earnings), then P/B = zero. How is that possible?

#2

whoa

#3

This is based off the DDM. No dividends means to cash flows to the investor and no value.

#4

.

#5

mwvt9 pulled the rabbit out of the hat.

#6

So this formula can’t be used for companies that do not pay any dividend? I guess we can try the other one P/B = 1 + PV(future residual income).