Two companies A and B have ROE 10% and 11%, respectively. The valuation of the two...

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Two companies A and B have ROE 10% and 11%, respectively. The valuation of the two companies is in the table below: Earnings per share Dividend per share Share price Number of shares Earnings per share Dividend per share Table 1. Valuation of A and B Company: A Share price Number of shares Company: B £0.39 £0.13 £2.41 1,000,000 £0.33 £0.18 £2.27 400,000 Calculate the sustainable growth rate for both A and B. Using the constant-growth dividend model, estimate the share price for both A and B. You may use the same growth rate that you calculated above and also assume a market capitalization rate of 13%. How your results will change if the forecasted growth for both companies is 14%? Comment on your results. Two companies A and B have ROE 10% and 11%, respectively. The valuation of the two companies is in the table below: Earnings per share Dividend per share Share price Number of shares Earnings per share Dividend per share Table 1. Valuation of A and B Company: A Share price Number of shares Company: B £0.39 £0.13 £2.41 1,000,000 £0.33 £0.18 £2.27 400,000 Calculate the sustainable growth rate for both A and B. Using the constant-growth dividend model, estimate the share price for both A and B. You may use the same growth rate that you calculated above and also assume a market capitalization rate of 13%. How your results will change if the forecasted growth for both companies is 14%? Comment on your results.

Answer rating: 100% (QA)

Sustainable Growth Rate for A Sustainable Growth Rate Return on Equity x 1 Dividend Payout Ratio 10 ... View the full answer