Suppose Stark Ltd. just issued a dividend of $2.57 per share on its common stock. The company paid dividends of $2.10, $2.31, $2.38, and $2.49 per share in the last four years. If the stock currently sells for $60. Required:
a. What is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends?
b. What if you use the geometric average growth rate? (Do not round intermediate calculations.

arithmetic average growth rate = (10% + 3.03% + 4.62% + 3.21%) / 4 = 5.22%

we need to find the required rate or return (RRR) in the following formula:

stock price = expected dividend / (RRR - growth rate)

605 = 2.7042 / (RRR - 0.0522)

RRR - 0.0522 = 2.7042 / 60 = 0.045

RRR = 0.045 + 0.0522 = 0.0973 = 9.73%

geometric average growth rate = [(1.10 x 1.0303 x 1.0462 x 1.0321)¹/⁴] - 1 = 0.05178 = 5.18%

again we need to find the required rate or return (RRR) in the following formula:

stock price = expected dividend / (RRR - growth rate)

60 = 2.703126 / (RRR - 0.0518)

RRR - 0.0518 = 2.703126 / 60 = 0.0450521

RRR = 0.0968521 = 9.69%

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explanation:

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whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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