12. ABC Co. has the following dividend payment history: (10 marks) Year Dividend
ID: 2627573 • Letter: 1
Question
12. ABC Co. has the following dividend payment history: (10 marks)
Year Dividend
2003 $1.00
2004 1.15
2005 1.25
2006 1.35
2007 1.45
a. How many periods of growth are there in the information given?
b. What is the compound growth rate of dividends?
c. Calculate the year-to-year growth rates in dividends.
d. What is the average year-to-year dividend growth rate?
e. Assume a retention ratio of 0.45 and a historical return on equity (ROE) of 0.18. Using these two additional pieces of information, calculate an alternative estimate of dividend growth rate, g.
Explanation / Answer
Solution:
1.)) 4-period growth is given.
2.)) Compound growth rate = (1.45/1.00)^(1/4)
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