Suppose Stark Ltd. just issued a dividend of $1.59 per share on its common stock. The company paid dividends of $1.25, $1.33, $1.40, and $1.51 per share in the last four years. a. If the stock currently sells for $40, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) a. What if you use the geometric average growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

The answer is below

Explanation:

a) The dividend growth rate is given as D2/D1 - 1

Year            Dividend                        Growth rate

1                    $1.25                            

2                   $1.33                       ($1.33/ $1.25 - 1) 6.4%

3                   $1.4                          ($1.4/$1.33 - 1) 5.26%

4                   $1.51                         ($1.51/$1.4 -1)  7.86%  

The arithmetic average growth rate is the average of all the growth rates.

Arithmetic average growth rate = (6.4% + 5.26% + 7.86%) / 3 = 6.51%

The cost of annuity = (cost of common stock / Selling stock price) * 100% + Average growth rate

The cost of annuity = ($1.59 / $40) * 100% + 6.51% = 10.49%

b) The geometric growth rate is given as:

geometric average growth rate =

The cost of annuity = ($1.59 / $40) * 100% + 6.5% = 10.48%

answer; /// i believe the correct answer is (all of the above);

ans.

heterothermic organisms include those organisms that can switch between homeothermic (having body temperature higher than environment) and poikilothermic (having variation in internal body temperature) strategies.

some migratory birds show heterothermy as they decrease their metabolic rate during cold nights to keep their body temperature low. drop in metabolic rate allows increase in production efficiency of birds that reduces the internal body temperature to make it equal to external cold temperature during cold nights.

thus, the correct answer is 'birds allow their temperature drop in order to increase their production efficiency.'