Question

Ross Textiles wishes to measure its cost of common stock equity. The​ firm's stock is currently selling for

​$38.08

The firm expects to pay a

​$3.29

dividend at the end of the year​ (2016). The dividends for the past 5 years are shown in the following​ table

Year	Dividend per Share
2015	​$2.99
2014	​$2.68
2013	​$2.34
2012	​$2.18
2011	​$2.03

After underpricing and flotation​ costs, the firm expects to net

​$34.65

per share on a new issue.

 Determine the growth rate of dividends from 2011 to 2015.?

Answer 1

Growth year 2011-2012=(Dividend year 2012)/Dividend year 2011-1

=(2.18+)/2.03-1

=7.39%

Growth year 2012-2013=(Dividend year 2013)/Dividend year 2012-1

=(2.34+)/2.18-1

=7.34%

Growth year 2013-2014=(Dividend year 2014)/Dividend year 2013-1

=(2.68+)/2.34-1

=14.53%

Growth year 2014-2015=(Dividend year 2015)/Dividend year 2014-1

=(2.99+)/2.68-1

=11.57%

a

Geometric Growth= ((1+Growth year 2011-2012)*(1 + Growth year 2012-2013)*(1 + Growth year 2013-2014)*(1 + Growth year 2014-2015))^(1/4)-1

= ((1+0.0739)*(1+0.0734)*(1+0.1453)*(1+0.1157))^(1/4)-1

=10.17%