The Oprah Corporation and the Harpo Corporation have had remarkably similar earnings patterns over the last five years. In fact, both firms have had identical earnings per share. Further, both firms are in the same industry, produce the same product, and face the same business and financial risks. In short, these firms are carbon copies of each other in every respect but one: Oprah paid out a constant percentage of its earnings (50 percent) in dividends, whereas Harpo has paid a constant cash dividend. The financial manager of the Oprah Corporation has been puzzled by the fact that the price of her firm's stock has been generally lower than the price of Harpo's stock, even though in some years Oprah's dividend was substantially larger than Harpo's.
a. What might account for the condition that has been puzzling the financial manager of Oprah?
b. What might be done by both companies to increase the market prices of their stock?

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OPRAH HARPO MARKET PRICE $6.00 4.00 2.00 3.50 MARKET PRICE $4.75 4.00 4.25 4.50 YEARS DIVIDEND EPS $1.00 0.50 0.25 0.50 DIVIDEND EPS $1.00 0.50 -0.25 0.50 50.50 0.25 0.23 0.23 0.23 0.23 0.25