Below are the data for two stocks, both of which have a discount rate of 10 percent:
Stock A Stock B
Return on equity 11% 12%
Earnings per share $2.20 $.90
Dividends per share $ .95 $.50
a. What are the dividend payout ratios for each firm?
b. What are the expected dividend growth rates for each firm?
c. What is the estimated stock price for each firm?
d. Which stock has the higher market value of equity?