Question

Assume​ Evco, Inc. has a current stock price of $49.12 and will pay a $1.90 dividend in one​ year; its equity cost of capital is 12%.What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current​ price?

Answer 1

equity cost of capital=(End value-Beginning value+Dividend)/Beginning value

0.12=(End value-49.12+1.9)/49.12

(0.12*49.12)=End value-47.22

End value=5.8944+47.22

=$53.1144