You are considering the purchase of a share of Alfa Growth, Inc. common stock. You expect...

Question

Question

Answer 1

Answer #1

The following information is given in the question

Selling price in one year =$76.33 per share

Divided in one year = $4.64 per share

Required return on the stock = 8.99%

The most can be paid for the stock now is present value of future selling price and dividend discounted at required rate of return.

The most can be paid for stock = [$76.33 /(1+8.99%)^1] + [$4.64 / (1+8.99%)^1]

= [$76.33 / 1.0899] + [$4.64 / 1.0899]

= $70.0339481 + 4.25727131

= $74.2912194

The most can be paid for stock of Alfa Growth inc. common stock now is $74.29

Answer 2

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