FINANCE 300 : Fin1
30 Oct 2014
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As we can value assets as the present value of future cash flows. If an investor has a one year horizon then the cash flows associated with the one year investment are: dividends, cash generated from selling the share at the end of the year. Suppose you are thinking of purchasing the stock of moore oil, Inc. and you expect it to pay a dividend in one year and you believe that you can sell the stock for at that time. Notice: the discount rate is the required rate of return by the stockholders, therefore the discount rate is the cost of equity. In addition to the dividend in one year, you expect a dividend of. You expect the stock price to be . 70 at the end of year 2. If the investor expects to hold the stock for n periods then:
