Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15 percent:
Stock A Stock B
Return on equity 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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Originally Posted by Corlette

Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15 percent:
Stock A Stock B
Return on equity 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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7%, $1.00 per share, Dividends $1.00

2%, $2.00 $1.00