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