(a) What is the best decision for the shareholders of Howard PLC and Costello PLC The primary focus in relation to the decision to be made by the shareholders and potential shareholders of the two companies concerns the issues of (1) buying equity shares in the two companies, (2) holding equity shares in the two companies, or (3) selling equity shares in the two companies. Based on the financial performance and market value data for the two companies provided in the case problem, the approach to developing an answer to decisions to be made by shareholders or potential shareholders is the determination of the expected return on a company's equity. The determining equation is as follows (Kuhlemeyer, 2004):
Ke = expected return on equity as a per cent;
E = earnings available to ordinary shareholders;
S = market value of ordinary stock outstanding.
The assumptions underlying the application of this equation are that (1) earnings are not expected to grow and (2) dividend payout of 100 per cent of earnings av
3 
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= 700
= 3 (250 words per page)
