Credenza Industries is expected to pay a dividend of $1.20 at the end of the coming year.It is expected to sell for $62.00 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?

Question

Quizplus · Accepted Answer

The expected capital gain is calculated as the expected selling price minus the current price. First, calculate the current price using the dividend discount model: Current Price = (Dividend + Selling Price) / (1 + Equity Cost of Capital) = ($1.20 + $62.00) / 1.08 = $58.52. The expected capital gain is $62.00 - $58.52 = $3.48.

Credenza Industries Is Expected to Pay a Dividend of $1