ART Has Come Out with a New and Improved Product

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock.
At what P/E ratio would you expect ART to sell?

A) 8.33
B) 11.43
C) 14.29
D) 15.25

Correct Answer:

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