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 2012 and their cost of capital is 11 percent. Both are forecast to have earnings of $16.60 in 2013. Firm A, which has 60 percent dividend payout, is forecast to have earnings of $17.80 in 2014. Firm B has zero payout.

a. What is your best estimate of firm B's earnings for 2014?

b. Would you pay more, less, or the same for firm B relative to firm A in 2012?

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...