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Coolibah Holdings is expected to pay dividends of $ 1.20 every six months for the next...

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 $ 22.00​, and​ Coolibah's equity cost of capital is 16​%, what price would you expect​ Coolibah's stock to sell for at the end of three​ years?

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Answer #1

Information provided:

Time= 3 years*2= 6 semi-annual periods

Interest rate= 16%/2= 8% per semi-annual period

Semiannual dividend payment=$1.20

Current price= present value= $22

The question is solved by computing the future value.

The below has to be entered in a financial calculator:

N= 6

I/Y= 8

PMT= 1.20

PV= -22

Press CPT and FV to find the value of the stock after 3 years.

The value obtained is 26.11.

Therefore, the value of the stock after 3 years is $26.11.

In case of any query, kindly comment on the solution.

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