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Hi, I am working on the following question and I am on part 'e': ABC Co. has the following dividend payment history for the last five years, with the...
$2.00 $2.50 $2.90 $3.20 $3.60 Historical growth rate estimation
a. What is the compound growth rate of dividends based on the last five years of dividends data? (2 marks)
b. Calculate the year-to-year growth rates in dividends. (2 marks)
c. What is the average year-to-year dividend growth rate? (1 mark)
d. ABC has a retention ratio of 0.75 and a historical return on equity (ROE) of 0.2.
Using these two additional pieces of information, calculate an alternative estimate of dividend growth rate, g. (1 mark) Dividend growth model
e. Given that ABC's share price is currently $65, and the most recent dividend paid is $3.60 per share, use the three growth rates estimated for historical growth (com- pound growth rate, average year-to-year growth rate, and alternative estimate) to calculate the cost of equity using the dividend growth model
How do you calculate the growth rate using the alternative estimate? I can not figure out to get the retention ratio and ROE from the information given.
Thank you