A company earned $2.00 per share in 1995 and paid cash dividends of $1.00. In 2005, it earned $5.20 and paid a dividend of $2.16. What is the annual growth rate in earnings and dividends? If the Consumer Price Index was 100 in 1995 and 163 in 2005, has the investor's purchasing power fallen??
What will be an ideal response?
These are all examples of the future value of $1.? Dividends: $1.00(1 + X)10 = $2.16; FVIF = 2.16 X = 8%?(PV = -1; N = 10; PMT = 0; FV = 2.16; I = ?; I = 8.01.)? Earnings: $2.00(1 + X)10 = $5.2; FVIF = 2.60 X = 10%?(PV = -2; N = 10; PMT = 0; FV = 5.2; I = ?; I = 10.03.)? CPI: 100(1 + X)10 = 163; FVIF = 1.63 X = 5%?(PV = -100; N = 10; PMT = 0; FV = 163; I = ?; I = 5.01.)?The dividends and earnings have both grown more rapidly than the Consumer Price Index. The investor's purchasing power has improved.
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