Question

The preferred stock of General Motors pays an annual dividend of $1.6 forever. The appropriate discount rate is 7% per year. Attempt 1/3 for 10 pts. Part 1 What is the present value of all dividends

Answer 1

Answer:

Present Value of all dividends =  $22,857,142.86  

Explanation:

A perpetuity is a series of cash flows that is receivable or payable for indefinitely number of years

The present value of a perpetuity is determined as follows:

PV= A/r

PV - Present  value of a perpetuity, A- annual cash flow(dividend),- 1,600,000 r- interest rate - 7%

PV = 1,600,00 ÷ 0.07=  22,857,142.86  

Present Value of all dividends =  $22,857,142.86