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?
Dividends payout ratio = Dividend per share / Earnings per share
Stock A ...
Solves a problem on equity valuation using Constant -Growth Model for equity valuation.