Need answer the financial accounting question Assume Evco, Inc., has a current stock price of $50 and will paya $2 dividend in one year; its equity cost of capital is 15%. Whatprice must you expect Evco stock to sell for immediately afterthe firm pays the dividend in one year to justify its current price?

Step 1: Define Cost of EquityA company's cost of equity is the return on investment it needs to…

Answered: Assume Evco, Inc., has a current stock…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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Assume Evco, Inc., has a current stock price of $50 and will pay a $2 dividend in one year; its equity cost of capital is 15%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price?