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#3 Suppose Beta, Ltd., just issued a dividend of $2.10 per share on its common stock. on its common stock. The Company paid dividends of
| #3 | Suppose Beta, Ltd., just issued a dividend of $2.10 per share on its common stock. | |||||
| on its common stock. The Company paid dividends of $2.15, $2.34, $2.75, $3.15, | ||||||
| per share in the last four years. | ||||||
| If the stock currently sells for $56, what is your best estimate of the companys cost of equity capital | ||||||
| What is the best estimate of the Beta Ltd.'s Cost of Equity | ||||||
| using the arithmetic average growth rate in dividends? | ||||||
| a | Ke based on Arithmetic Average = | 14.98% | ||||
| b | Ke based on Arithmetic Average = | 12.98% | ||||
| c | Ke based on Arithmetic Average = | 16.98% | ||||
| d | Ke based on Arithmetic Average = | 13.98% | ||||
| Year | 0 | 1 | 2 | 3 | 4 | |
| Dividends | ||||||
| Individual Growth Rates | ||||||
| Arithmetic Growth Average | ||||||
| Geometric Average | ||||||
| DDM based on arithmetic average | ||||||
| Do | ||||||
| arithmetic growth | ||||||
| D1 | ||||||
| Po | ||||||
| Dividend Yield | ||||||
| Cost of Capital Ke | ||||||
| #4 | Suppose Beta, Ltd., just issued a dividend of $2.10 per share on its common stock. | |||||
| on its common stock. The Company paid dividends of $2.15, $2.34, $2.75, $3.15, | ||||||
| per share in the last four years. | ||||||
| If the stock currently sells for $56, what is your best estimate of the companys cost of equity capital | ||||||
| What is the best estimate of the Beta Ltd.'s Cost of Equity | ||||||
| using the geometric average growth rate in dividends? | ||||||
| a | Ke based on Geometric Average = | 12.82% | ||||
| b | Ke based on Geometric Average = | 14.82% | ||||
| c | Ke based on Geometric Average = | 16.82% | ||||
| d | Ke based on Geometric Average = | 15.82% | ||||
| Year | 0 | 1 | 2 | 3 | 4 | |
| Dividends | ||||||
| Individual Growth Rates | ||||||
| Arithmetic Growth Average | ||||||
| Geometric Average | ||||||
| DDM based on Geometric Average | ||||||
| Do | ||||||
| Geometric Growth | ||||||
| D1 | ||||||
| Po | ||||||
| Dividend Yield | ||||||
| Cost of Capital Ke | ||||||
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Principles Of Finance
Authors: Scott Besley, Eugene F. Brigham
2nd Edition
003034509X, 9780030345098
