The Generous Cup Corporation and the Happy Mug Corporation have exactly the same operating risk. Investors expect Generous Cup to pay no dividends and to have a price of $70 in one year. Investors expect Happy Mug to pay a dividend of $4.00 in one year and to have a value of $40 in one year. Corporations pay no income tax. Investors pay 20% on dividends but no tax on capital gains. If the current price of Generous Cup is $62.50, what is the current price of Happy Mug?

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The Answer of The Generous Cup Corporation and the Happy Mug Corporation have exactly the same operating risk. Investors expect Generous Cup to pay no dividends and to have a price of $70 in one year. Investors expect Happy Mug to pay a dividend of $4.00 in one year and to have a value of $40 in one year. Corporations pay no income tax. Investors pay 20% on dividends but no tax on capital gains. If the current price of Generous Cup is $62.50, what is the current price of Happy Mug?

The Generous Cup Corporation and the Happy Mug Corporation Have