Ask Question
BusinessBusiness
22 September, 05:25

Owen inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. if owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

+2
Answers (1)
  1. 22 September, 06:34
    0
    As it is known that future cash flows are risky in nature so it is not possible to discount them at risk free rate. So investor must discount the future cash flows based on the equity cost of capital. It is the expected return of the other investments available in the market with same kind of risk to the firm’s share.

    Price of the stock can be found by using the cost of equity equation which is as follows:

    Po = Div_1 + P_1 / 1 + r_E

    $15 = 0.8 + X / 1.12

    X = $16

    So the expected selling price of the stock is $16.00
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Owen inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. if owen's equity cost of capital is 12%, ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
What is the result when a transaction is properly analyzed and recorded?
Answers (1)
An in-depth study of a healthy 89-year-old man who has smoked two packs of cigarettes a day for more than 60 years is intended to reveal universal principles related to the effects of smoking on health. however, the man is atypical.
Answers (1)
A satellite orbit the earth. which changes would decrease force of earth gravity on a satellite?
Answers (1)
Which institution will most likely provide the best deposit interest rate?
Answers (1)
Sheldon Company began Year 2 with $1,500 in accounts payable. During the year, the company incurred utility expense of $3,500 on account. The company paid $2,000 on accounts payable by year end. The company also paid a cash dividend of $500.
Answers (1)
New Questions in Business
You want to create a slide that lists the pros and cons of using cloud storage as part of your presentation on business technology. Which pre-set layout would you want to use? A. Content with caption B. Title only C.
Answers (2)
Two or more products are produced using limited resources. The firm would like to determine how many units of each product it should produce to maximize overall profit given its limited resources.
Answers (1)
1. Calculate owners' equity. Doughnut Company shows $130,000 worth of assets on its December 31, 2009, balance sheet. If total liabilities are $55,800, what is the amount of owners' equity?
Answers (1)
The term "constant returns to scale" describes a situation where expanding all inputs does not change the average cost of production. a larger-scale firm can produce at a lower cost than a smaller-scale firm.
Answers (1)
When you visit a campus, you should plan to do all of the following except. A. stay the night in a dorm. B. meet with a professor. C. sit in on a class lecture. D. attend a college party.
Answers (2)
Home » Business » Owen inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. if owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?
Sign Up Forgot Password?