In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $0.72. In 2008, KCP paid an annual dividend of $0.38, and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $14.97 per share.

1. What would an investor with perfect foresight of the above been willing to pay for KCP at the start of 2006? (Note: Because an investor with perfect foresight bears no risk, use a risk-free equity cost of capital of 5.3%.)
   1. The present value of the cash flows is $__________?

1. b. Does your answer to (a) imply that the market for KCP stock was inefficient in 2006?