The constant-growth DCF formula:
P₀ = DIV₁/r-g
is sometimes written as:
P₀ = ROE(1-b) BVPS/r-bROE
where BVPS is book equity value per share, b is the plowback ratio, and ROE is the ratio of earnings per share to BVPS. Use this equation to show how the price-to-book ratio varies as ROE changes. What is price-to-book when ROE=r?
