Conflicting formula for justified P/B
1. Justified P/B = (ROE-r)/(r-g)
2. By using the residual income model, V(0) = B(0) + {(ROE - r) * B(0)}/ ( r-g)
==> V/B = 1 + (ROE - r)/ (r-g)
Related Question:
Century Scales has a required return on equity of 12% and is expected to grow indefinitely at a rate of 5%. The ROE that would justify a P/B of 2.14 is closest to? |