Sub: Finance Topic: Valuation of stock
Expected dividend and market value of the two firms.
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Firms C and D have time zero EBIT of $1,000. The required return on equity for both of these
unlevered firms is 10%. The marginal corporate tax rate is 34%. Firm C has a dividend payout
ratio of 20% and a dividend growth rate of 8%. Firm D has a dividend payout ratio of 80% and a
dividend growth rate of