Rylan Industries is expected to pay a dividend of $5.20 per year 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 expected price of Rylan's stock at the end of four years can be calculated using the dividend discount model for a period of four years, taking into account the dividends paid over those years and the equity cost of capital. The calculation does not directly provide the future stock price but rather the present value of those future dividends. The correct answer, however, involves understanding that the question essentially asks for the calculation of the present value of dividends, which then indirectly suggests the stock's value after those dividends have been paid, assuming all else equal. Given the dividends and the cost of capital, the calculation focuses on the present value, which is what the $29.52 represents in this context - a misunderstanding of the question's aim towards the future stock price post-dividend payments.

Rylan Industries Is Expected to Pay a Dividend of $5