Credenza Industries is expected to pay a dividend of $1.15 at the end of the coming...
Credenza Industries is expected to pay a dividend of $1.15 at the end of the coming year. It is expected to sell for $68 at the end of the year. If its equity cost of capital is 88%, what is the expected capital gain from the sale of this stock at the end of the coming year?
A. $64.03
B. $62.96
C. $5.04
D. $ 3.97
Homework Answers
Answer: Option D is correct
Present value=Present value of the dividend Dividend and the
selling price at cost of capital of 8%
=1.15/(1+8%)+68/(1+8%)
=64.02777778
Capital gain=Selling price-Present value
=68-64.02777778=3.97222222 or $3.97 (Rounded to two decimal
places)
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