Question: Forecasts for next year for two firms, A and B are: Stock A Stock B Return on equity 17% 15% Earnings per share $ 5.00

Forecasts for next year for two firms, A and B are:

	Stock A	Stock B
Return on equity	17%	15%
Earnings per share	$ 5.00	$ 4.00
Dividends per share	$ 3.00	$ 3.00

a. What are the dividend payout ratios for each firm?
b. What are the expected sustainable dividend growth rates for each stock? Assume dividend has a steady growth for both stocks.
c. If investors require a return of 17% on each stock, what are their values?

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