In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of

$0.72.

In 2008, KCP paid an annual dividend of

$0.34,

and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for

$14.67

per share.

a. 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

5.1%.)

b. Does your answer to

(a)

imply that the market for KCP stock was inefficient in 2006?