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Here are forecasts for next year for two stocks:   Stock A Stock B Return on equity   17 %   14 % Earnings per share $ 3.00   $ 2.50   Dividends per share $ 2.00   $ 2.00     a. What are the dividend payout ratios for each firm?  b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks. c. If investors require a return of 17% on each stock, what are their values?

Here are forecasts for next year for two stocks:   Stock A Stock B Return on equity   17 %   14 % Earnings per share $ 3.00   $ 2.50   Dividends per share $ 2.00   $ 2.00     a. What are the dividend payout ratios for each firm?  b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks. c. If investors require a return of 17% on each stock, what are their values?

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter9: The Cost Of Capital
Section: Chapter Questions
Problem 5P
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*Please solve using excel and explain formulas.

Question:

Here are forecasts for next year for two stocks:

 

Stock A

Stock B
Return on equity   17 %   14 %
Earnings per share $ 3.00   $ 2.50  
Dividends per share $ 2.00   $ 2.00  
 

a. What are the dividend payout ratios for each firm? 

b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks.

c. If investors require a return of 17% on each stock, what are their values? 

 
 
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