Here are data on two stocks, both of which have discount rates of 15%: What are

Question

Here are data on two stocks, both of which have discount rates of 15%:

What are the dividend payout ratios for each firm? (Enter your answers as a percent rounded to 2 decimal places.)

What are the expected dividend growth rates for each firm? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

What is the proper stock price for each firm? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Here are data on two stocks, both of which have discount rates of 15%:

Explanation / Answer

Formula Stock A B Dividend payout Dividend /earning 1.8/3 = .60 or 60% 1.8/2.3 = 78.26% Expected growth rate ROE *(1-Dividend payout) 15 *(1- .60) 12 * (1-.7826) 15*.40 = 6% 2.61% stock price Dividend /(Ke-g) 1.8 /(.15 - .06) 1.8 /(.15-.0261) 1.8/ .09 = $ 20 1.8/ .1239 = $ 14.53

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