What are the dividend payout ratios for each firm and what are the expected dividend growth rates for each firm?
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Here are the data on two stocks, both of which have discount rates of 15 percent:
Stock A Stock B
Return on equity 15% 10%
Earnings per share $2.00 $1.50
Dividends per share $1.00 $1.00
a. What are the dividend payout ratios for each firm?
b. What are the expected dividend growth rates for each firm?
c. What is the proper stock price for each firm?
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a. What are the dividend payout ratios for each firm?
dividend payout ratio is d = dividend / EPS
Then
dA = 1/2 = ...
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