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Please answer all questions . Thank You LewCo, a construction company, pays an annual dividend on December 31 of cach year. LewCo paid a dividend
Please answer all questions . Thank You
LewCo, a construction company, pays an annual dividend on December 31" of cach year. LewCo paid a dividend of S10 per share on December 31, 2019 (ex-date). LewCo increased the dividend by 6% per year since the company started in 1958 1. Today is January 2, 2020, and the current stock price is $400 per share. What expected return (r", discount rate, cost of capital) are investors attaching to LewCo based on the dividend discount model? 2. Based on the model, what will be the price of the stock on January 2, 2021? Remember that the company pays a dividend on December 31" of each year. 3. Assume an investor purchased $100,000 of LewCo stock January 2, 2020, and liquidated (sold) it a year later on January 2, 2021, after receiving the dividend payment. A. What would be the investor's price return or capital gain (percent and dollars)? B. What would be the investor's total return (percent and dollars)? C. The tax on long-term capital gains is 15%, and the tax on regular income is 35%. Half of the dividend qualifies for long-term capital gains treatment; the other half is regular income. The investor held the stock for more than a year (barely), so she receives long- term capital gains on the price appreciation. What is the after-tax rate of returnStep by Step Solution
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