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    Constant -Growth Model for equity valuation

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    Constant -Growth Model: Here are 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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    Solution Preview

    Dividends payout ratio = Dividend per share / Earnings per share
    Stock A ...

    Solution Summary

    Solves a problem on equity valuation using Constant -Growth Model for equity valuation.