"Let me ask you, and I'm genuine too, a question and I'm happy...

"Let me ask you, and I'm genuine too, a question and I'm happy to get an answer from any reader. Assume ACL Fonda was a stand alone company and available for purchares on the ASX today. It has intends to pay an unfranked dividend of 10c from 30 june 2012. Future dividends depend on the market share of Fonda in the US and Row and the amount of discounting necessary to achieve that share. At the moment there is an AG on the market but no sign of other generics entering the field but it must be assumed that others will eventually follow. The company has no other sources of income now or in the foreseeable future.

Q1 Would you buy that stock?

Q2 How much would you be prepared to pay."

1. I'm going to answer that based on whether I would invest my money there or in a bank term deposit. So I could put $10,000 in a term deposit and earn 5.7% per annum or I could buy that many ACL shares and earn 30% over 8 months. That's easy. I would invest in ACL. However I would also expect the share price to go up to make the 30% closer to 5%. That would mean a share price of $2 by June. I could then choose to sell my ACL shares for $66,000. A nice profit of about $60,000 in 8 months!

2. If the dividend is going to be about 10c per share then it would be reasonable to pay an amount which makes that 10c about a 10% return. So I guess if I had all those certainties I would pay $1 per share.

I'm sure these are very simplistic responses and don't take into account risk factors but then I'm a very simplistic investor (some would say simple).

Rev