Problem 14-4 Estimating the DCF Growth Rate [LO1]

Suppose Stark Ltd. just issued a dividend of $1.91 per share on its common stock. The company paid dividends of $1.60, $1.66, $1.73, and $1.84 per share in the last four years.

If the stock currently sells for $45, what is your best estimate of the companys 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.)

Cost of equity

%

What if you use the geometric average growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity

%