Question

Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 a share in Year 3.
At a discount rate of 18 percent, what should one share sell for today?

Answer 1

Answer:

The stock will be saled today at $ 33.54

Explanation:

We solve for this using the lump sum formula and adding each discounted value

$\frac{Maturity}{(1 + rate)^{time} } = PV$  

discount rate 0.18

# Cashflow Discounted

0 0                0

1 4                3.39

2 3                 2.15

3 46               28            

Total                      33.54