2.Calculate the growth rate of Asset J dividends, we have to assume that future dividend payments will grow at a constant rate into the future forever. This constant rate can be estimated by calculating the average growth rate from the past dividends. Calculate Asset J’s dividend growth rate for the past 8 years.
Year 1 2 3 4 5 6 7 8
Dividend $0.86 $2.00
Let:
Dj = $ .86,
D8 = $2.00,
n = 8.
To calculate the average growth rate from the past dividends, we can use the formula:
Average Growth Rate = (D8/Dj)^(1/n) - 1
Let's plug in the values:
Dj = $0.86
D8 = $2.00
n = 8
Average Growth Rate = (2.00/0.86)^(1/8) - 1
Now we can solve this equation step by step:
1. Divide D8 by Dj: 2.00/0.86 = 2.3256
2. Take the n-th root of the result, where n = 8: 2.3256^(1/8) = 1.1135
3. Subtract 1 from the result: 1.1135 - 1 = 0.1135
Therefore, the average growth rate of Asset J's dividends for the past 8 years is approximately 11.35%.