Two chemical corporations both equity financed with no debt

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Two chemical corporations, both equity financed with no debt, are essentially in the same business. However, whereas one of the corporations has a stable earnings and dividend record, paying out all its earnings in dividends, the other is a growth stock increasing its earnings and dividends annually through a different management strategy. The current dividend is $5 per share for both corporations. The stable corporation's stock trades for $40 per share and the price of the growth stock is $50.

Estimate the investors' required rate of return on these stocks and the steady future growth rate of the growing corporation as perceived by the market.

Reference no: EM13885322

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