Question: X , Y , and Z are all equity financed firms. They follow a 1 0 0 % , 5 0 % and 2 5

X, Y, and Z are all equity financed firms. They follow a 100%,50% and 25% dividend payout policies respectively. X expects before personal tax earnings of $5 per share per year in perpetuity. Y expects before personal tax earnings of $4 per share per year in perpetuity. Z expects before personal tax earnings of $6 per share per year in perpetuity. Xs stock is trading at $40 per share. It has a beta of 1.2. Y is half as risky as X and Z is 3 times as risky as Y. Risk free rate of return is 3%. What should the current share prices of Y and Z be? Assume the marginal personal tax rate on dividends is 31% and on capital gains 23%(after adjusting for only half of the capital gain is taxable).

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