1) Eastern Electric currently pays a dividend of about $1.78 per share and sells for $27 a share. If investors' required rate of return is 15%, what must be the growth rate they expect of the firm? Growth rate __ %
2) Here are data on two stocks, both of which have discount rates of 10%
| |
Stock A |
Stock B |
| Return on equity |
|
10 |
% |
|
8 |
% |
| Earnings per share |
$ |
1.20 |
|
$ |
1.50 |
|
| Dividends per share |
$ |
.60 |
|
$ |
.60 |
The earnings per share and the dividends per share represent Year 0 values.)
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?
3) No-Growth Industries pays out all of its earnings as dividends. It will pay its next $4 per share dividend in a year. The discount rate is 11%.
What is the price-earnings ratio of the company?
What would the P/E ratio be if the discount rate were 10%?