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Stock X currently has income per share of $ 2 . It pays $ 1 . 5 0 in dividends. It has investments that generate

Stock X currently has income per share of $2. It pays $1.50 in dividends. It has investments that generate returns of 15%. Stockholders require a return of 18% for Stock X. Stock Y currently has income per share of $5. It pays $2 in dividends. It has investments that generate returns of 10%. Investors require a return of 15% for Stock Y. Both Stock X and Stock Y expect their dividends to grow at a constant rate. 1
1. What is the retention ratio of Stock X?
2. What is the dividend growth rate of Stock X?
3. What is the value of Stock X according to the constant growth rate model of stock valuation?
4. If Stock X has a price of $10, will you invest in Stock X? Why or why not?
5. What is the retention ratio of Stock Y?
6. What is the dividend growth rate of Stock Y?
7. What is the value of Stock Y according to the constant growth rate model of stock valuation?
8. If Stock Y has a price of $25, will you invest in Stock Y? Why or why not?

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