Question

Use the information for the question(s) below. Von Bora Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect Von Bora's stock price to be $25.00 at the end of two years. Von Bora's equity cost of capital is 10%. Suppose you plan to hold Von Bora stock for only one year. Your capital gain from holding Von Bora stock for the first year is closest to:

Answer 1

the capital gain for the first year is $23.15

Step-by-step explanation:

The computation of the capital gain for the first year is shown below;

Current value = Future dividend and value × Present value of discounting factor(rate%,time period)

= $1.4 ÷ 1.1 + $1.5 ÷ 1.1^2 + $25 ÷ 1.1^2

= $23.15

Hence, the capital gain for the first year is $23.15

The same should be considered and relevant too