A firm's dividends have grown over the last several years

Finance Jan 30, 2021

A firm's dividends have grown over the last several years. At the end of the year 2002, the firm paid a dividend of $1. At year-end 2014, it paid a dividend of $5. What was the average annual compound growth rate of dividends for this firm?

Expert Solution

Computation of Average Annual Compound Growth Rate of Dividends for this firm:

Average Annual Compound Growth Rate (CAGR) = (Ending Value/Beginning Value^(1/Number of Years)) - 1

= ($5/$1^(1/12)) - 1

= 1.1435 - 1

Average Annual Compound Growth Rate (CAGR) = 0.1435 or 14.35%

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