Question
Forecasts for next year for two firms, A and B are: Stock A Stock B Return on equity 17% 15% Earnings per share $ 5.00
Forecasts for next year for two firms, A and B are:
| Stock A | Stock B | |
|---|---|---|
| Return on equity | 17% | 15% |
| Earnings per share | $ 5.00 | $ 4.00 |
| Dividends per share | $ 3.00 | $ 3.00 |
a. What are the dividend payout ratios for each firm?
b. What are the expected sustainable 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?
Step by Step Solution
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Step: 1
a The dividend payout ratio for a firm can be calculated by dividing the dividends per share by th...
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Principles of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Franklin Allen
13th edition
1260013901, 1260565553, 978-1260013900
