Solved: Determine the dividend payout ratios for each firm, Finance Basics

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Determine the dividend payout ratios for each firm

Question:

Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15 percent:

Return on equity Stock A Stock B
15% 10%

Earnings per share $2.00 $1.50

Dividends per share $1.00 $1.00

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 proper stock price for each firm?

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Finance Basics: Determine the dividend payout ratios for each firm

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