Question

plans to pay dividends of $1.36, $1.15, $1.35, and $.40 at the end of the next four years, respectively. After that, the company will be sold and shareholders are expected to receive $82.40 per share in Year 6 when the sale should be finalized. If the required return is 11.4 percent, what is the current value of one share of this stock

Answer 1

Answer:

MV=$46.5

Explanation:

MV=D1/(Ke-g)

Mv=1.15/(.114-0.089)

MV=46.5

Where MV=?

Ke=11.4%

g=8.95% it calculated by discounting all dividends with Ke

D1=1.15

Answer 2

Answer:

The present value of the stock is $46.50

Explanation:

Current Value of the stock equals present value of all future cash flows

P = Future value/1+ Discount rate ^n

   =1.36/1+0.114+1.15/1+0.114^2+1.35/1+0.114^3+0.40/1+0.114^4+82.40/1+0.114^6

   =1.2208+0.9267+0.9765+0.2597+43.1138

=$46.4975/$46.50