Spokane's Best Coffee Shoppe, Inc. (SBCS) pays a dividend of $!.00 per year on its common stock. This dividend is never expected to changed. (Remember, common stock has no maturity date. So the dividend is expected to be $1.00 per share forever.) The market expected return on stock's like SBCS is 15 percent per year.
a. What is SBCS's price per share today? (Assume that the next dividen will be paid one year today.)
b. Suppose SBCS has 1,000,000 shares outstanding. What is the total market value of SBCS's common stock?
c. What will be the price of SBCS's stock in 5 years (i.e., at the end of 5 years from today after the dividen for year 5 has been paid)?
(To solve, write out the cash flows.)