Question

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?

Answer 1

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

Step-by-step 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