Question

Assume Evco, Inc. has a cumrent stock price of $53.16 and wil pay a $1.85 dividend in one year. its equity cost of capital is 17%. What price must you expect Evco stock to sell for immediately after the Sem pays the dividend in one year to justily s curent price? We can expect Evco stock to sell for $ (Round to the nearest cent)

Answer 1

The price that we can expect Evco stock to sell for is computed by using the below formula:

Current stock price = ( Stock price in one year + dividend to be paid in one year ) / ( 1 + cost of equity )

$ 53.16 = ( Stock price in one year + $ 1.85 ) / ( 1 + 0.17 )

Stock price in one year = $ 60.35 Approximately

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