Question

Kevin Simpson is an equity analyst with Jade Investments and is considering Shamrock Systems for inclusion in its large cap fund. In order to estimate the growth rate of dividends in the DDM, Simpson has collected historical earnings per share data for the last two business cycles. Year EPS ($) 2007 0.46 2008 0.72 2009 0.78 2010 0.96 2011 0.87 2012 1.05 2013 0.76 2014 0.90 2015 0.91 2016 1.27 2017 1.13 2018 1.27 REQUIRED:

1. Calculate the arithmetic and geometric mean growth rate of EPS from 2007 to 2018.

2. Why should the geometric mean growth rate be used?

Answer 1