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Stock price using - Constant Growth Model

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Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15%:

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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This solution is comprised of a detailed calculation to answer the dividend payout ratios, expected dividend growth rates, and stock price.

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Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15%:

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?

Stock A
Payout Ratio = Dividend paid/Earnings per share
= ...

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