Question: Stock Valuation. Here are forecasts for next year for two stocks: Stock A Stock B Return on equity 15% 10% Earnings per share $2.00

Stock Valuation. Here are forecasts for next year for two stocks: Stock

Stock Valuation. Here are forecasts for next year for two stocks: Stock A Stock B Return on equity 15% 10% Earnings per share $2.00 $1.50 Dividends per share $1.00 $1.00 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?

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