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29 May 2019
Supose Acap Corporation will pay a dividend of $2.75 per share at the end of this year and $3.09 per share next year. You expect Acap's stock price to be $53.54 in two years. Assume that Acap's equity cost of capital is 10.5%.
A. What price would you be willing to pay for a share of Acap stock today, if you planned to hild the stock for two years?
B. Suppose instead you plan to hold the stock for one year. For what pice would you expect to be able to sell a share of Acap stock in one year?
C. Given your answer in (B), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (A)?
Supose Acap Corporation will pay a dividend of $2.75 per share at the end of this year and $3.09 per share next year. You expect Acap's stock price to be $53.54 in two years. Assume that Acap's equity cost of capital is 10.5%.
A. What price would you be willing to pay for a share of Acap stock today, if you planned to hild the stock for two years?
B. Suppose instead you plan to hold the stock for one year. For what pice would you expect to be able to sell a share of Acap stock in one year?
C. Given your answer in (B), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (A)?
Casey DurganLv2
31 May 2019
