Question
Problem 4-13 Constant-growth DCF model Here are forecasts for next year for two stocks: Stock A Stock B Return on equity 16 % 14 %
Problem 4-13 Constant-growth DCF model
Here are forecasts for next year for two stocks:
Stock A | Stock B | |||||
Return on equity | 16 | % | 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? (Do not round intermediate calculations. Enter your answers as a percent rounded to the nearest whole number.)
b. What are the expected dividend growth rates for each stock? Assume dividend has a steady growth for both stocks. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
c. If investors require a return of 16% on each stock, what are their values? (Do not round intermediate calculations. Round final answers to 2 decimal places.)
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