Two firms, A and B, which have very similar operations, have the same book value of 100 at the end of 2009 and their cost of capital is 11 percent Both are forecast to have earnings of $16 60 in 2010 Firm A, which has 60 percent dividend payout, is forecast to have earnings of $17 80 in 2011 Firm B...

a Firm B will have higher earnings in 2011 because it will pay no ...

Two firms, A and B, which have very similar operations, have the same book value of 100

Question:

Two firms, A and B, which have very similar operations, have the same book value of 100 at the end of 2009 and their is 11 percent. Both are forecast to have earnings of $16.60 in 2010. Firm A, which has 60 percent payout, is forecast to have earnings of $17.80 in 2011. Firm B has zero payout.
a. What is your best estimate of firm B's earnings for 2011?
b. Would you pay more, less, or the same for firm B relative to firm A in 2009?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...