In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $ 0.71. In 2008, KCP paid an annual dividend of $ 0.36, and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $ 15.34 per share. a. What would an investor with perfect foresight of the above been willing to pay for KCP at the start of 2006? (Note: Because an investor with perfect foresight bears no risk, use a risk-free equity cost of capital of 5.3%.) b. Does your answer to (a)imply that the market for KCP stock was inefficient in 2006?
In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $ 0.71. In 2008, KCP paid an annual dividend of $ 0.36, and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $ 15.34 per share. a. What would an investor with perfect foresight of the above been willing to pay for KCP at the start of 2006? (Note: Because an investor with perfect foresight bears no risk, use a risk-free equity cost of capital of 5.3%.) b. Does your answer to (a)imply that the market for KCP stock was inefficient in 2006?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of
$ 0.71. In 2008, KCP paid an annual dividend of $ 0.36, and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $ 15.34 per share.
a. What would an investor with perfect foresight of the above been willing to pay for KCP at the start of 2006?
(Note: Because an investor with perfect foresight bears no risk, use a risk-free equity cost of capital of 5.3%.)
b. Does your answer to (a)imply that the market for KCP stock was inefficient in 2006?
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