Locked-In Real Estate (LIRE) is preparing for their Initial Public Equity Offering (IPO)

Finance Dec 19, 2020

Locked-In Real Estate (LIRE) is preparing for their Initial Public Equity Offering (IPO). With its holdings consisting of rent controlled apartments, and no plans for expanding, LIRE plans to payout all of its earnings as dividends. These dividends amount to $5.25 per share, forever. If the expected rate of return is 10%, what is the stock price of LIRE?

Expert Solution

Dividend today D0	7.50
Dividend at end of year, D1	7.50
g	0%
Rate of return	12%
Price = D1/(ke-g)
Price = 7.50/12%
Price	62.50 or 63

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