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Stock valuation

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1. Use the information for the question(s) below.

Vandhalia Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect Vandhalia's stock price to be $25.00 at the end of two years. Vandhalia's equity cost of capital is 10%

a. What is the price you would be willing to pay today for a share of Vandhalia stock, if you plan to hold the stock for two years?

b. Suppose you plan to hold Vandhalia stock for one year. What is the price you would expect to be able to sell a share of Vandhalia stock in one year?

c. Suppose you plan to hold Vandhalia stock for only one year. What is your capital gain from holding Vandhalia stock for the first year?

d. Suppose you plan to hold Vandhalia stock for only one year. What is your capital gain rate from holding Vandhalia stock for the first year?

e. Suppose you plan to hold Vandhalia stock for only one year. What is our dividend yield from holding Vandhalia stock for the first year?

f. Suppose you plan on purchasing Vandhalia stock in one year, right after the $1.40 dividend is paid. You then plan on selling your stock at the end of year two, right after the $1.50 dividend is paid. What is the capital gain rate that you will receive on your investment?

g. Suppose you plan on purchasing Vandhalia stock in one year, right after the $1.40 dividend is paid. You then plan on selling your stock at the end of year two, right after the $1.50 dividend is paid. What is the dividend yield that you will receive on your investment?

h. Suppose you plan on purchasing Vandhalia stock in one year, right after the $1.40 dividend is paid. You then plan on selling your stock at the end of year two, right after the $1.50 dividend is paid. What is the total return that you will receive on your investment?

i. Suppose you plan to hold Vandhalia stock for only one year. Calculate your total return from holding Vandhalia stock for the first year. Explain what this means.

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1. Use the information for the question(s) below.

Vandhalia Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect Vandhalia's stock price to be $25.00 at the end of two years. Vandhalia's equity cost of capital is 10%

a. What is the price you would be willing to pay today for a share of Vandhalia stock, if you plan to hold the stock for two years?
The price would be the present value of cash flows from the stock. The cash flows are
Year 1 - $1.40 in dividend
Year 2 - $1.50 in dividend + $25 in the price = $26.50
Present value = 1.40/1.1 + 26.50/(1.1)^2 as 10% is the cost of capital
The price would be $23.17
b. Suppose you plan to hold Vandhalia stock for one year. What is the price you would expect to be able to sell ...

Solution Summary

The solution explains some questions relating to stock valuation.

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