What is the price you would pay for stock now

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Q.1) Jumbuck Exploration has a current stock price of $2.00 and is expected to sell for $2.10 in one year's time, immediately after it pays a dividend of $0.26. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Q.2) Credenza Industries is expected to pay a dividend of $1.20 at the end of the coming year. It is expected to sell for $62.00 at the end of the year. If its equity cost of capital is 8%, what is the price you would pay for this stock now?

Q.3 Suppose you expect Longs Drug Stores to pay an annual dividend of $.56 per share in the coming year and to trade $45.50 per share at the end of the year. If investments with equivalent risk to Longs' stock have an expected return of 6.80%, what is the most you would pay today for Longs' stock?

Q.4) Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If Coolibah's equity cost of capital is 16% and its price at the end of the 3 years is expected to be $26.74, how much would you pay for it now?

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In this project I have calculated cost of equity and current market price of shares using the formulas. Cost of equity is the return required by investors on the investment amount. The solution is related to the concepts of time value of money and dividend models.

Reference no: EM131014327

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