The dividend payout ratio for Stock A and Stock B.

Question

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Answer 1

Question

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

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"Dividend paying stocks cannot be growth stocks" Do you agree or disagree? Discuss choosing two stocks to help justify your view.

Answer 2

Question

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

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Answer 3

Question

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

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Answer 4

Question

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

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Answer 5

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

Answer 6

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

Answer 7

Chapter 7, Problem 21QP

a.

Summary Introduction

To determine: The dividend payout ratio for Stock A and Stock B.

Answer 8

a.

Expert Solution

Answer to Problem 21QP

The dividend payout ratio for Stock A is 0.50 and Stock Bis 0.67.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Determine the dividend payout ratio for Stock A and Stock B

Dividend PayoutStock A=[Dividends per share(D0)Earnings per share(EPS)]=[$1$2]=0.50Dividend PayoutStock B=[Dividends per share(D0)Earnings per share(EPS)]=[$1$1.50]=0.666667 or 0.67

Therefore, the dividend payout ratio for Stock A is 0.50 and Stock B is 0.67.

Answer 13

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Answer 14

b.

Summary Introduction

To determine: The expected dividend growthrate for Stock A and Stock B.

Answer 15

b.

Expert Solution

Answer to Problem 21QP

The expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Determine the expected dividend growth rateforStock A and Stock B

Dividend Growth RateStock A=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.50)×15%]=0.075 or 7.50%Dividend Growth RateStock B=[Plowback Ratio×Return on Equity(ROE)]=[(1−0.6667)×10%]=0.033333 or 3.33%

Therefore, the expected dividend growth rate for Stock A is 7.50% and Stock B is 3.33%.

Answer 20

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57

Therefore, the stock value for Stock A is $13.33 and Stock B is $8.57.

Answer 21

c.

Summary Introduction

To determine: The stock value for Stock A and Stock B.

Answer 22

c.

Expert Solution

Answer to Problem 21QP

The stock value for Stock A is $13.33 and Stock B is $8.57.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Determine the stock value forStock A and Stock B

Stock Price(P0)Stock A=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−7.50%]=$13.33Stock Price(P0)Stock B=[Current Dividends(D0)Required Return(r)−Growth Rate(g)]=[$115%−3.3333%]=$8.571429 or $8.57