Credenza Industries is expected to pay a dividend of $ 1.60 at the end of the...
Credenza Industries is expected to pay a dividend of $ 1.60 at the end of the coming year. It is expected to sell for $ 69 at the end of the year. If its equity cost of capital is 8%, what is the expected capital gain from the sale of this stock at the end of the coming year?
Homework Answers
D1 = $1.60
P1 = $69
Cost of Equity (Ke) = 8%
P0 = P1 + D1 / (1 + Ke)
P0 = [$69 + $1.60] / (1 + 0.08)
P0 = $65.37037
Capital gain yield = [P1 - P0] / P0
Capital gain yield = [$69 - $65.37037] / 65.37037
Capital gain yield = 0.0555
or Capital gain yield is 5.55%
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