Credenza Industries is expected to pay a dividend of $ 1.15 at the end of the coming year. It is expected to sell for $ 62 at the end of the year. If its equity cost of capital is 10 %, what is the expected capital gain from the sale of this stock at the end of the coming year?

The expected capital gain from the sale of this stock at the end of the coming year is $5.74

Explanation:

Beginning price = (devidend + end price) * present value of $1 at 10%

= ($1.15 + $62) * [1 / (1 + 10%) ]

= $57.41

Expected capital gain = selling price - beginning price

= $63.15 - $57.41

= $5.74

Therefore, The expected capital gain from the sale of this stock at the end of the coming year is $5.74