Stock Valuation.

Here are forecasts for next year for two stocks:

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

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

c. If investors require a return of 15% on each stock, what are their values?

d. If investors require a P/E ratio of 6, Which stock is overvalued, undervalued?

Stock A Stock B Return on equity Earnings per share Dividends per share 15% $2.00 $1.00 10% $1.50 $1.00