Use the geometric average growth rate

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Suppose Stark Ltd. just issued a dividend of $1.96 per share on its common stock. The company paid dividends of $1.60, $1.70, $1.77, and $1.88 per share in the last four years.

If the stock currently sells for $70, 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity %

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

Cost of equity %

Reference no: EM131316545

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