Question
In: Finance
Suppose Acap Corporation will pay a dividend of $1.9 per share at the end of this...
Suppose Acap Corporation will pay a dividend of $1.9 per share at
the end of this year and $2.15 per share next year. You expect
Acap’s stock price to be $35 in two years. Assume that Acap’s
equity cost of capital is 13%. What price would you be willing to
pay for a share of Acap stock today?
Solutions
Expert Solution
Price of stock = PV of CFs from it.
| Year | Cash Flow | PVF @13% | PV of CFs |
| 1 | $ 1.90 | 0.8850 | $ 1.68 |
| 2 | $ 2.15 | 0.7831 | $ 1.68 |
| 2 | $ 35.00 | 0.7831 | $ 27.41 |
| Price Today | $ 30.78 |
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