Here are data on two stocks, both of which have discount rates of 15%: Stock A Stock

Question:

Here are data on two stocks, both of which have discount rates of 15%:

Stock A Stock B

Return on equity... 15.00% 10.00%

Earnings per share... $2.00 $1.50

Dividends per share. $1.00 $1.00

Discount Rates..... 15.00% 15.00%

a.What are the dividend payout ratios for each firm?

b.What are the expected dividend growth rates for each firm?

c.What is the proper stock price for each firm?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...