Cha Cha, Inc. will pay a $5 dividend one year from now and a $5.10 dividend...
Cha Cha, Inc. will pay a $5 dividend one year from now and a $5.10 dividend two years from now. The stock will be sold in two years for an estimated price of $32. If the required rate of return is 8%, which of the following values is closest to the stock's price?
Homework Answers
Stock price = D1/(1+ ke)^1 + D2/(1+ke)^2 + P2/(1+ke)^2
D1 = 5
D2 = 5.10
P2 = 32
Ke = 8%
(5/1+8%)+(5.1/(1+8%)^2)+(32/(1+8%)^2)
=36.43689986
So, stock price is closet to $36.44
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