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Constant-Growth Model.

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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

This solution answers questions regarding CGM, addressing dividend payout ratios, dividend growth rates and proper stock price.

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Stock A B
Return on Equity 15% 10%
Earnings per Share $2.00 $1.50
Dividends per Share $1.00 $1.00

dividend payout ratio 0.50 0.67
expected ...

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