hardwork24

Okay guys, as per my understanding B is correct.
1. A is incorrect, because, if ROE goes down, means E (Earnings) goes down, market would bid the Price down accordingly, so that P/E does not change or atleast does not go higher.
2. C is incorrect, because it will take P/E lower and not higher, as all of you have already pointed out.
3. B is correct, because, if Beta of a company goes down, its cost of equity will also go down. Correct? (use CAPM equation to explain this). Now, coming back to DDM to calculate P/E, for a reduced k, P/E will go higher.