OwenInc has a current stock price of $14.30 and is expected to pay a $0.70 dividend in one year. If Owenlnc's equity cost of capital is 11%, what price would Oweninc's stock be expected to sell for immediately after it pays the dividend? OA. $12.14 OB. $15.87 B

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
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**Problem Statement:**

OwenInc has a current stock price of $14.30 and is expected to pay a $0.70 dividend in one year. If OwenInc's equity cost of capital is 11%, what price would OwenInc's stock be expected to sell for immediately after it pays the dividend?

**Options:**

- A. $12.14
- B. $15.87
- C. $10.62
- D. $15.17

---

**Explanation:**

This problem addresses the calculation of a stock's price immediately following a dividend payment, using the Dividend Discount Model or other relevant valuation approaches. A key aspect to consider is the impact of the dividend on the stock's price and the effect of the required rate of return.

*Note: No additional graphs or diagrams are included in the image.*
Transcribed Image Text:**Problem Statement:** OwenInc has a current stock price of $14.30 and is expected to pay a $0.70 dividend in one year. If OwenInc's equity cost of capital is 11%, what price would OwenInc's stock be expected to sell for immediately after it pays the dividend? **Options:** - A. $12.14 - B. $15.87 - C. $10.62 - D. $15.17 --- **Explanation:** This problem addresses the calculation of a stock's price immediately following a dividend payment, using the Dividend Discount Model or other relevant valuation approaches. A key aspect to consider is the impact of the dividend on the stock's price and the effect of the required rate of return. *Note: No additional graphs or diagrams are included in the image.*
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