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    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?

    Please show details. Thanks!

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    Solution Preview

    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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