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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