question archive Consider the following information which relates to dividends per share (DPS) for a given company: Year DPS 2019 $5
Consider the following information which relates to dividends per share (DPS) for a given company: Year DPS 2019 $5
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Consider the following information which relates to dividends per share (DPS) for a given company: Year DPS 2019 $5.8 2018 $1.70 $1.55 2017 2016 $1.40 $4.1 2015 Today, we are in 2020. Management is in the process of deciding whether to expand or not to expand the firm's branches. Below, is a set of inputs associated with each scenario: Scenario #1 - Do Not Expand: Dividend by the end of 2020 is expected to grow at the historical annual growth rate for the period 2015-2019, which is currently undetermined. This period adds up to four years based upon starting at time zero. Once determined, this rate is expected to continue in the future. Under this scenario, the required return on common stock is 7.1%.
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Answer :-
Calulation of Growth rate as follow:
Growth Rate% Formula =[ (Ending value/Beginning value)-1]*100%
Using the groth rate formula above, the Growth rate from 2015 to 2019 computed as follow :-
| Year | Particulars | Growth rate% |
| 2015 | 0 because there is no prceding time period | 0 |
| 2016 | [(1.4/4.1)-1]*100% | -65.85% |
| 2017 | [(1.55/1.4)-1]*100% | 10.71% |
| 2018 | [(1.70/1.55)-1]*100% | 9.68% |
| 2019 | [(5.8/1.7)-1]*100% | 241.1765% |
Annual Average Growth Rate =[(-65.85%)+10.71%+9.68%+241.1765%]
AAGR = 195.71%= 195.71%/5year
= 39.14%
# The AAGR is a standard for calculating the average return on investment over period of time. Essentially it is the basic average growth rate of return for period of time. and it is usful in assessing long-term trends.
So conclusion is that Managemnt should expand the firms branches, because as per growth rate there is on an average there is growth in the project which is calculated 39.14%.
