Question

Coolibah Holdings is expected to pay dividends of $ 1.10 every six months for the next three years. If the current price of Coolibah stock is $ 22.00​, and​ Coolibah's equity cost of capital is 14​%, what price would you expect​ Coolibah's stock to sell for at the end of three​ years?

Answer 1

$25.15

Step-by-step explanation:

The price the stock would be sold at the end of the three-year holding period can be computed using excel FV formula stated below:

=fv(rate,nper,pmt,-pv)

rate is the semiannual cost of capital i.e 14%/2=7%

nper is the number of dividend payments over three-year period which is 6

pmt is the amount of semiannual dividend payment

pv is the current stock price

=fv(7%,6,1.1,-22)=$25.15