In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $ 0.69
ID: 2784243 • Letter: I
Question
In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $ 0.69
In 2008, KCP paid an annual dividend of $ 0.39,
and then paid no further dividends through 2012. Suppose KCP was acquired at the end of 2012 for $ 15.23 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 5.5 %.)
b. Does your answer to
(a) imply that the market for KCP stock was inefficient in 2006?
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 5.5 %)
The present value of the cash flows is
$nothing.
(Round to the nearest cent.)
Explanation / Answer
The present value of the cash flows is
=0.69/(1+5.5%)^1+0.69/(1+5.5%)^2+0.39/(1+5.5%)^3+15.23/(1+5.5%)^7
=12.08
the above is the answer.
b.
the answer is no, because it can be case that the investor in 2006 might have different expectations or assumptions about the stock. The market would have been inefficent only if the stock was trading in 2006 at under or over value levels as compared to justifable assumptions based price.
the above are the answers
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