Question

jacob Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent

Answer 1

Answer:

$4.85

Explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator

Cash flow each year in year 1 and 2 = 0

Cash flow in year 3 = $2.50

Cash flow each year in year 4 and 5 = $3

I = 15%

Present value = $4.85

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

Answer 2

Answer:

$4.85

Explanation:

cash flow 1           $0

cash flow 2          $0

cash flow 3     $2.50

cash flow 4     $3.00

cash flow 5     $3.00

discount rate 15%

you can calculate the present value manually or using an excel spreadsheet (both results should be the same):

manually ⇒ present value = $2.50/1.15³ + $3.00/1.15⁴ + $3.00/1.15⁵ = $1.64 + $1.72 + $1.49 = $4.85

using excel and the NPV function =NPV(15%,0,0,2.5,3,3) = $4.85