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Question

Suppose Stark Ltd. just issued a dividend of $2.33 per share on its common stock. The company paid dividends of $2.00, $2.08, $2.15, and $2.26 per share in the last four years.

  • If the stock currently sells for $55, what is your best estimate of the company as cost of equity capital using the arithmetic average growth rate in dividends?
  • What if you use the geometric average growth rate?
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