Suppose Wacken, Ltd., just issued a dividend of $2.73 per share on its common stock. The company
Question:
Suppose Wacken, Ltd., just issued a dividend of $2.73 per share on its common stock. The company paid dividends of $2.31, $2.39, $2.48, and $2.58 per share in the last four years. 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? What if you use the geometric average growth rate?
Step by Step Answer:
1 Average arithmetic growth rate Growth year 123923123100346 year 224823923900376 year 32582482...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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This model assumes that the required rate of return will remain the same for the foreseeable future and also assumes that the growth rate is going to be constant. The same results will be obtained using the sustainable growth rate formula that states g = b x ROI
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