Question

Suppose that stockbrokers have projected that Jamestown Savings will pay a dividend of $2.50 per share on its common stock at the end of the year; a dividend of $3.25 per share is expected for the next year, and $4.00 per share in the following 2 years. The risk-adjusted cost of capital for banks in Jamestown's risk class is 15%. If an investor holding Jamestown's stock plans to hold that stock for only four years and hopes to sell it at a price of $50 per share, what should the value of the bank's stock be in today's market

Answer 1

... Jamestown Savings will pay a dividend of $2.50 per share on its common.... ... per share on its common stock at the end of the year; a dividend of $3.25 per share is expected for the next year, and $4.00 per share in the following two years. The risk-adjusted cost of capital for banks in Jamestown's risk class is 15 percent.

Step-by-step explanation: