Market Price =$103.18

# Shares (mm, or millions) =2,897

Long term debt ($mm from balance sheet) =$45,396

Tax rate (T) =25%

Walmart beta () =0.66

Current risk free rate (rf) =2.59%

Estimated market risk premium =6.00%

Estimated underwriter spread =1.0%

Estimated additional flotation costs =0.5%

Estimated total flotation cost (as a % of debt face value) =1.50%

Dividend payout ratio (dividends paid out as a % of net income)2015 =38.02%2016= 42.89%2017= 45.59%2018= 62.04%2019= 91.68%

Net income ($ millions)2015 =$163632016= $146942017= $136432018= $98622019= 6670

Common equity $ (millions, book value)2015 =$859372016= $836112017= $805352018= $808222019= 79634

ROE (net income/common equity or NI/CE)2015 =19.04%2016= 17.57%2017= 16.94%2018= 12.20%2019= 8.38%

Dividend history ($/share)2015 =$1.912016= $1.962017= $2.002018= $2.042019= $2.08

Dividend estimates ($/share)2020 = $2.142021= $2.052022= $2.402023= $2.48

Value of equity (market capitalization) =$298912.46

Value of long term debt(use book value) =$45396

Weight of equity =0.87

Weight of debt=0.13

The cost of equity can be calculated with the dividend discount model or using CAPM.

We will start with the dividend discount model: r = D1/P0 + gWe have D1 (2020 expected dividend) and P0 (current stock price), it is g that must be calculated.

The growth rate (assumed constant) for dividends can be calculated two different ways, 1) Calculate "g" using historic or projected trends in dividends per share or 2) Calculating "g" from ROE and reinvestment in the firm:g = ROE * (1-payout ratio). Read the following questions and clearly answer the question as asked, using the appropriate estimation method for the growth rate.

Answer below

1)What is the 3 year growth rate (2020-2023) ofexpecteddividends?

Calculate and describe how you arrived at your answer (what were the inputs).

2)What is the 4 year growth rate (2015-2019) ofactualdividends?

Calculate and describe how you arrived at your answer (what were the inputs).

3)DISCUSS: Do either of these values seem appropriate? If so, which one and why?