Question

Suppose Hornsby Ltd. just issued a dividend of $2.59 per share on its common stock. The company paid dividends of $2.09, $2.16, $2.33, and $2.43 per share in the last four years.

What was the dividend growth rate for each year? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Growth rate
Year 1	%
Year 2	%
Year 3	%
Year 4	%

What were the arithmetic and geometric dividend growth rates over the past four years? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Cost of equity
Arithmetic dividend growth rate	%
Geometric dividend growth rate	%

If the stock currently sells for $78, what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Cost of equity
Arithmetic dividend growth rate	%
Geometric dividend growth rate	%

Answer 1

12:05 W voraux 23 ENG , € 30-03-2020 22 ... o X MJ172 x fx MH MIMU MK MLMMMN MO MP M Q A 152 153 154 а last 5 years dividend year dividend growth rate (g) 2.09 2.16 2.33 2.43 2.59 3.35% [(2.16/2.09) - 1] 7.87% [(2.33/2.16) - 1] 4.29% and so on 6.58% 155 156 157 158 159 160 161 162 163 164 165 166 167 168 total arithmetic return = arithmetic average growth = 22.10% 5.5240% 5.5240% 2.59 DO = ke = 169 ke = DO*(1+g)/PO + g 2.59*(1+0.055240)/78 + 0.055240 9.03% 170 ke = 171 172 173 174 175 Az KE CAPM UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLO Q DIR right clean YIELD bc ... Đ

12:05 W voraux 23 ENG , € 30-03-2020 22 ... o X MJ190 X ✓ fx Д мн м м MK ML MM MN MO MP MQ A 171 172 173 ь last 5 years dividend year dividend 174 175 176 177 178 179 uw NP 2.09 2.16 2.33 2.43 2.59 180 181 Geometric average growth = Geometric average growth = (2.59/2.09)^(1/4) - 1 5.5087% 182 5.5087% 2.59 DO = 183 184 185 186 187 ke = ke = DO*(1+g)/PO + g 2.59*(1+0.055087)/78 + 0.055087 9.01% 188 ke = 189 190 191 192 193 194 KE CAPM UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLO Q DIR right clean YIELD bc ...