1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
solniwko [45]
3 years ago
11

Suppose Stark Ltd. just issued a dividend of $1.59 per share on its common stock. The company paid dividends of $1.25, $1.33, $1

.40, and $1.51 per share in the last four years. a. If the stock currently sells for $40, 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.) a. 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.)
Business
1 answer:
Harlamova29_29 [7]3 years ago
7 0

Answer:

The answer is below

Explanation:

a) The dividend growth rate is given as D2/D1 - 1

Year            Dividend                        Growth rate

1                    $1.25                            

2                   $1.33                       ($1.33/ $1.25 - 1) 6.4%

3                   $1.4                          ($1.4/$1.33 - 1) 5.26%

4                   $1.51                         ($1.51/$1.4 -1)  7.86%  

       

The arithmetic average growth rate is the average of all the growth rates.

Arithmetic average growth rate = (6.4% + 5.26% + 7.86%) / 3 = 6.51%

The cost of annuity = (cost of common stock / Selling stock price) * 100% + Average growth rate

The cost of annuity = ($1.59 / $40) * 100% + 6.51% = 10.49%

b) The geometric growth rate is given as:

geometric average growth rate =

(\frac{D_n}{D_o} )^{\frac{1}{n} }-1\\D_n=1.51,D_o=1.25,n=3\\\\Geometric\ growth\ rate=\frac{1.51}{1.25}^{1/3}-1=6.5\%

The cost of annuity = ($1.59 / $40) * 100% + 6.5% = 10.48%

You might be interested in
"which expenses would most likely be classified as prepaid expenses (asset) rather than accrued expenses (liability)?"
MakcuM [25]

Expenses likely to be classified as prepaid expense (asset) are Prepaid Rent & Insurance Premiums. Enter a prepaid rent payment on the balance sheet as an asset until the month when the company is actually using the facility to which the rent relates, and then charge it to expense.   Any insurance premium costs that have not expired as of the balance sheet date should be reported as a current asset such as Prepaid Insurance.


8 0
3 years ago
Read 2 more answers
Memorial Hospital CEO conducts performance reviews of the hospital's departments and discovered that the average cost of deliver
lora16 [44]

Answer:

Memorial Hospital

From the information on how much the hospital is losing on deliveries, the change in profit for each extra delivery is:

= 16.3%.

Explanation:

a) Data and Calculations:

Average cost of deliveries = $5,000

Average revenue per delivery = $4,300 ($5,000 - $700)

Loss on each delivery = $700

The change in profit for each extra delivery is

= 16.3% ($700/$4,300 * 100)

b) The implication of the above information is that the hospital is losing 16.3% each time it performs a delivery because it cost it $5,000 while it can only receive $4,300 from each patient delivered.

4 0
2 years ago
A group of business entrepreneurs who worried about their teenage children drinking and driving decided there must be some way t
vfiekz [6]

Answer: A) Prototype

Explanation:

The first model shown to entrepenuers are called prototypes

proto- before

6 0
3 years ago
Identify and describe the purpose of the 3 types of employment forms.
Lilit [14]

Answer: Employee, worker and self-employed.

Explanation: An employee is an individual who has entered into or works (or worked) under the terms of a contract of employment.

A Worker A worker who is not an employee works under a contract whereby the individual.

A self-employed is the state of working by themself not as a employee .

5 0
2 years ago
Read 2 more answers
Which of the following companies would be most risky to invest in? A. Company A makes bold moves and grows rapidly. B. Company B
iVinArrow [24]
The right answer for the question that is being asked and shown above is that: "A. Company A makes bold moves and grows rapidly." <span> The company that would be most risky to invest in is that </span><span>A. Company A makes bold moves and grows rapidly.</span>
4 0
3 years ago
Read 2 more answers
Other questions:
  • When the cost method is used to account for a stock investment the carrying value of the investment is affected by
    8·1 answer
  • How has culture affected technology?
    15·1 answer
  • How do firms examine productivity?
    12·1 answer
  • In a conversation between two parties, a statement like, "What I'm hearing you say . . ." is an example of:
    11·1 answer
  • Credit unions differ from retail banks because they are
    11·2 answers
  • If the demand for a good is estimated to be _____, then firms producing the good will experience an increase in total revenue if
    8·1 answer
  • When hiring clerks for the mail room, the Acme Global Corporation required applicants to take a sorting ability test. The test s
    9·1 answer
  • Messing company has an agreement with a third-party credit card company, which calls for cash to be received immediately upon de
    11·1 answer
  • Rosita purchased 300 shares of a stock for $37 a share. Today, the stock is selling for $41 a share. The initial margin requirem
    5·1 answer
  • A(n) ________ is an internet business model that provides an online meeting place where people with similar interests can commun
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!