Reference no: EM132930483

Question: Suppose Acap Corporation will pay a dividend of $2.86 per share at the end of this year, and $2.92 per share next year. You expect Acap's stock price to be $51.71 in two years. If Acap's equity cost of capital is 9.9%:

a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

b. Suppose instead you plan to hold the stock for one year. What price would you expect to be able to sell a share of Acap stock for in one year?

c. Given your answer in part (b), what price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for one year? How does this compare to your answer in part (a)?

A. You would pay less for a stock today if you only plan to hold it for one year.
B. You would pay less for a stock today if you plan to hold it for two years instead of one year.
C. You would be willing to pay more for a stock today if you planned to hold it for two years rather than one year
D. The price you are willing to pay for the stock today is the same whether you plan to hold the stock for one year or two years.

Note: It is best not to round intermediate calculations - make sure to carry at least four decimal places in intermediate calculations