Credenza Industries is expected to pay a dividend of $ 1.15 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 10 %, what is the expected capital gain from the sale of this stock at the end of the coming year?

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Business

Mitchell Wilkerson

9 June, 08:02

Credenza Industries is expected to pay a dividend of $ 1.15 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 10 %, what is the expected capital gain from the sale of this stock at the end of the coming year?

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Jamiya · Answer 1

The expected capital gain from the sale of this stock at the end of the coming year is $5.74

Explanation:

Beginning price = (devidend + end price) * present value of $1 at 10%

= ($1.15 + $62) * [1 / (1 + 10%) ]

= $57.41

Expected capital gain = selling price - beginning price

= $63.15 - $57.41

= $5.74

Therefore, The expected capital gain from the sale of this stock at the end of the coming year is $5.74