Assume a retention ratio of 045 and a historical return on


ABC Co. has the following dividend payment history:

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.

 

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Finance Basics: Assume a retention ratio of 045 and a historical return on
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