Answer to Question #144357 in Financial Math for Eric

Question

c) Fanta ltd has a dividend cover of five (5) times and recorded the following earnings after tax; 
YEAR EARNINGS $
2011 100,000
2012 120,000
2013 180,000
2014 220,000
2015 300,000
Calculate the average dividend growth rate for Fanta ltd.

Answer 1

Divided growth in 2012

$=[\frac{120000}{100000}-1]\times100\% = 20\%$

Divided growth in 2013

$=[\frac{180000}{120000}-1]\times100\% = 50\%$

Divided growth in 2014

$=[\frac{220000}{180000}-1]\times100\% = 22.2\%$

Divided growth in 2015

$=[\frac{300000}{220000}-1]\times100\% = 36.4\%$

Therefore, Average growth Rate

$n=2015-2011=4$

$=\frac{20+50+22.2+36.4}{4}=32.15\%$