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?

a. Dividend pay-out ratio
   1/2= 50% for A and 1/1.5 = 66.67% for B

b. Expected dividend growth rate = retention rate x ROE
A
50% x 15% = 7.5%
B
33.33% x 10% = 3.33%

c. Fair price = D1 / r ?g
A
$1.075/(0.15-0.075) = $14.33
B
$1.033/(0.15-0.033) = $8.30

wow this is a lifesaver, thanks!