Let’s suppose that the Co. decides to issue stock to raise funds, the Co. grants the stockholders to pay them dividends of 20 USD/share from next year onwards, and the Co has no expectations of growth.

Given the scenario described above, and given that the equity cost of capital for similar products (similar field, similar market, similar activity…) is an 8%, what would be the price the Co. could sell the shares at?

If the cost of capital is that 8%, and the expected dividends for next year are 20 €/share, but now the Co. expects to grow a 3% per year (and so will grow the dividends) from next year onwards, what would be the price the Co. could sell the shares at?

Given the previous scenario (cost of capital: 8%, dividends expected next year: 20 €/share, expectation of growth: 3%) if the shares were offered at a price of 450€, would that price be interesting for the potential investors (the new stockholders)? Why?

If an investor expects to receive 20 €/share next year, a 3% more the year after, and in that moment (two years from now) the value of the share is expected to be 400€, what would be the maximum price that investor would be ready to pay for those shares, if he/she wants to gain a 6% with that operation?

Answer rating: 100% (QA)

Lets break down the scenarios 1 No Growth Scenario Dividends 20 per share Cost of capita... View the full answer