Use the geometric average growth rate

Assignment Help Financial Management
Reference no: EM131316545

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


Write a Review


Financial Management Questions & Answers

  Elements of statement of cash flow

A cash flow statement indicates flow of cash into and out of a business organization. In most cases, an organization’s cash in hand is lower than operations, although both have to be equal and this is attributed by outstanding bills still not paid by..

  Income statement and statement of cash flows for a firm

You have been asked to evaluate the balance sheet, income statement, and statement of cash flows for a firm. If you had to choose only three financial ratios to conduct your preliminary analysis, which three ratios would you choose and why?

  What is the initial net cash flow of the machine

Mars, Inc. is considering the purchase of a new machine, which will reduce manufacturing costs by $5,000 annually. Mars will use the MACRS (5-year class) method to depreciate the machine, and it expects to sell the machine at the end of its 5-year li..

  What is current value of bond if present market conditions

A private, for profit clinic has a bond issue outstanding with a coupon rate of 8 percent and five years remaining until maturity. The par value of the bond is $1000, and the bond pays interest annually. What is the current value of the bond if prese..

  Should you invest in given project

A project costs $19,000 and promises the following cash flows: - The appropriate discount rate is 15% per annum. Should you invest in this project?

  Two systems are being considered for water purification

Two systems are being considered for water purification. System 1 has an initial cost of $100,000, annual expenses of $25,000 and a salvage value of $5,000 at the end of its expected life of 5 years. The System 2 has an initial cost of $150,000, annu..

  Does use of private judges threaten our system of justice

Some experts argue that people should be allowed to hire Judges to resolve their disputes. Just like they can hire an attorney, they can hire a Judge. Currently, Judges are appointed by the Judicial branch for a period of time. Does the use of privat..

  Constant annual dividend-nominal return on this investment

Hilltop Garage pays a constant annual dividend. One year ago, when you purchased shares of that stock at $12 a share, the dividend yield was 2 percent. Over this past year, the inflation rate has been 2.6 percent. Today, the required return on this s..

  What is the cost of haroldsons retained earnings

How large can the capital budget be before common stock must be sold and what is the cost of Haroldson's retained earnings?

  A large role in higher education financing

Seven in ten students attending publicly funded universities leave the state after graduation, indicating that a very large fraction of states' investments in human capital bears fruit elsewhere.- Why might states still play such a large role in h..

  What would you use as market beta estimate for your project

If the stock market returns -10%, and +5% if the stock market returns +10%.- What would you use as the market beta estimate for your project?

  Lieu of those future cash flows

Due to an accident, you will be compensated with $1000 every year for three years and $2000 every year thereafter for another three years. How much would you be willing to take today in lieu of those future cash flows, assuming that you could earn an..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd