Respuesta :
Answer: 11.48%; 11.47%
Explanation:
Given that,
Dividend Issued on common stock = $1.20 per share
Dividend paid in last four years:
$.85 per share
$.92 per share
$.99 per share
$1.09 per share
Stock currently sells at = $53
Calculation of growth rates in dividends :
G1 = [tex]\frac{0.92-0.85}{0.85}[/tex]
= 8.24%
G2 = [tex]\frac{0.99-0.92}{0.92}[/tex]
= 7.6%
G3 = [tex]\frac{1.09-0.99}{0.99}[/tex]
= 10.1%
G4 = [tex]\frac{1.20-1.09}{1.09}[/tex]
= 10.09%
(1) Arithmetic growth Rate = [tex]\frac{8.24+7.6+10.1+10.09}{4}[/tex]
= 9.01%
Cost of Equity = [tex]\frac{(1.20)(1.0901)}{53}+0.0901[/tex]
= 11.48%
(2) Geometric growth Rate
[tex]1.20=0.85(1+g)^{4}[/tex]
G = 9%
Cost of Equity = [tex]\frac{(1.20)(1.09)}{53}+0.09[/tex]
= 11.47%
