Kenzie Cos. is expected to pay a dividend of $3.35 per year indefinitely. The ap
ID: 2743734 • Letter: K
Question
Kenzie Cos. is expected to pay a dividend of $3.35 per year indefinitely. The appropriate rate of return on this stock is 16 percent per year, and the stock consistently goes ex-dividend 40 days before dividend payment date. What will be the expected minimum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.) Minimum stock price $ 20.6 What will be the expected maximum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.) Maximum stock price $
Explanation / Answer
Annual Dividend = $3.35
Required rate of return = 16%
Ex-Dividend time period = 40 days
Number of days in year = 365
Minimum stock price = ($3.35 / 16%) – [3.35 – {3.35 × (365 – 40) / 365}]
= $20.9375 – (3.35 - $2.9829)
= $20.9375 - $0.3675
= $20.60
Minimum stock price of company is $20.60
Again Maximum stock price of company is calculated below:
Minimum stock price = ($3.35 / 16%) + {3.35 × (365 – 40) / 365}
= $20.9375 + $2.9829
= $23.92.
Maximum Stock price of company is $23.92.
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