E6.5. Dividend Displacement and Value (Medium) Two firms, A and B, which have very similar operations, have the same book value of 100 at the end of 2009 and their cost of capital is 11 percent. Both are forecast to have earnings of $16.60 in 2010. Firm A, which has 60 percent dividend payout, is forecast to have cam- ings of $17.80 in 2011. Firm B has zero payout.

a. What is your best estimate of firm B's earnings for 2011?

b. Would you pay more, less, or the same for firm B relative to firm A in 2009?