Suppose stark ltd. just issued a dividend of $2.57 per share on its common stock. the company paid dividends of $2.20, $2.31, $2.38, and $2.49 per share in the last four years. if the stock currently sells for $65, 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.)

Growth rate (g) = n-1√(Latest dividend)     - 1

                                      Current  dividend

                          = 4-1√($2.49/2.20)   -1  

                         = 3√(1.1318)  -1  

                        = 1.04  -  1

                        = 0.04 = 4%

Ke = Do(1 + g)  +  g

               Po

Ke =  $2.57(1  +  0.04)  + 0.04

                         65

Ke = 0.04 + 0.04

Ke = 0.08 = 8%

Explanation:

In this  case, we need to calculate the growth rate using the above formula. Then, the cost of equity will be  calculated. Cost of equity is a function of current dividend paid subject to growth rate divided by current market price.

Explanation:

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