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Company A has paid the following dividends per share:
2015: $3.00
2016: $4.50
2017: $5.00
2018: $5.50
2019: $6.00
1. Calculate the arithmetic average of dividend growth using the four years of increases.
2. Calculate the geometric average for dividend growth for 4 years (2015 base year to 2019).
3. Calculate the expected stock price using the arithmetic average. Assume a discount rate of 25%.
4. Calculate the expected stock price using the geometric average and the same discount rate.
5. Assume the stock price of Company A is $140.00. Indicate which estimate (3. or 4.) is closer to that price.
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