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Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years

Respuesta :

jepessoa

Answer:

$28.87

Explanation:

to determine the the future value of Coolibah's stock, we can use an excel spreadsheet and the future value function =FV(rate,nper,pmt,pv,[type])

  • rate = 18% / 2 = 9% = 0.09
  • nper = 6
  • pmt = $1.20 = 1.2
  • pv = -$22.60 = -22.6
  • [type] optional, not necessary

=FV(0.09,6,1.2,-22.6) = $28.87

*You can also use calculate the value of the annuity and then add it to the present value, but it is just longer, the answer is the same.

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