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%