Suppose Stark Ltd. just issued a dividend of $1.96 per share on its common stock. The company paid dividends of $1.60, $1.70, $1.77, and $1.88 per share in the last four years.
If the stock currently sells for $70, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends?
What if you use the geometric average growth rate?