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Suppose Stark, Ltd., just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.17, $2.25, and $2.36 per share in the last four years.

by zeehold

Suppose Stark, Ltd., just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.17, $2.25, and $2.36 per share in the last four years.

 

a.

If the stock currently sells for $43, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b.What if you use the geometric average growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

arithmetic = 11.89%

geometric = 11.88%

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