Credenza Industries is expected to pay a dividend of $1.70 at the end of the coming year. It is expected to sell for $62 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?
A) $3.56
B) $56.88
C) $5.12
D) $58.44

Question

Quizplus · Accepted Answer

A) P₀using the capital gain rate formula = ($1.70 + $62) / (1 + 0.09) = $58.44; Capital gain = P₁ - P₀ = $62 - $58.44 = $3.56

Credenza Industries Is Expected to Pay a Dividend of $1