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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 5P

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