Suppose powers ltd., just issued a dividend of $1.20 per share on it common stock. the company paid dividends of $.85, $.92, $.99, and $1.09 per share in the last four years. if the stock currently sells for $53, what is your best estimate of the company's cost of equity capital using arithmetic and geometric growth rates?

11.48%; 11.47%

Explanation:

Given that,

Dividend Issued on common stock = $1.20 per share

Dividend paid in last four years:

$.85 per share

$.92 per share

$.99 per share

$1.09 per share

Stock currently sells at = $53

Calculation of growth rates in dividends :

G1 =

    = 8.24%

G2 =

     = 7.6%

G3 =

     = 10.1%

G4 =

     = 10.09%

(1) Arithmetic growth Rate =

                                           = 9.01%

Cost of Equity =

                        = 11.48%

(2) Geometric growth Rate

G = 9%

Cost of Equity =

                        = 11.47%

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