Question
Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and a dividend of $3 per share next
Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and a dividend of $3 per share next year. You expect Acap's stock price to be $52 in two years. Assume that Acap's equity cost of capital is 10%. a. What price would you be willing to pay for a share of Acapbstock today, if you planned to hold the stock for two years? b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in kne year? c. Given your answer to (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 price compare to your answervin (a)? d. Tell whether the price you would pay is or is not affected by the holding period.
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