Rylan Industries is expected to pay a dividend of $5.20 per share for the next four years. If the current price of Rylan stock is $32.63, and Rylan's equity cost of capital is 14%, what price would you expect Rylan's stock to sell for at the end of the four years?

Question

Quizplus · Accepted Answer

The stock price at the end of four years can be calculated using the dividend discount model. The present value of dividends and the expected stock price should equal the current stock price. Solving for the expected stock price at the end of four years gives $29.52.

Rylan Industries Is Expected to Pay a Dividend of $5