Consider two firms: A and B. Market capitalisation rate or required rate of return of both firms is 12%. Both firms have a plowback ratio of 0.65. Book value per share is $20 for both the firms. Return on equity (ROE) of firm A and B are 15% and 12%respectively.

Earning per share of firm A and B are $3 and $2.4 respectively. Which firm has higher stock price? 

Answer rating: 100% (QA)

To determine which firm has a higher stock price we can use the Gordon growth model which calculates ... View the full answer