Question

Estimating the Implied End-of-Year Share Price Assume that a company’s beginning-of-period price is $14 per common share, its dividends are $1 per share, and its expected cost of equity capital is 10%. What is the expected end-of-period price per common share? Round answer to two decimal places. $Answer

Answer 1

Answer:

expected end-of-period price per share is $14.40

Explanation:

Beginning of period price = $14

Dividend per share = $1

Cost of Equity Capital = 10%

Cost of Equity Capital:

= (End of period price + Dividend per share - Beginning of period price) ÷ Beginning of period price

10% = (End of period price + $1 - $14) ÷ $14

$1.40 = End of period price - $13

End of period price = $14.40

So, expected end-of-period price per share is $14.40