Question

Home Parties is paying an annual dividend of $1.25 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. One year after the last normal dividend payment, the company plans to pay a final liquidating dividend of $25 per share. What is the current market value of this stock if the required return is 17 percent

Answer 1

Answer:

$15.91

Explanation:

The computation of the current market value is shown below:

Year   Dividend   PV factor at 17%      Present value or PV

          A               B                               A × B

1          $1.25        0.8547                      1.068375

2                          0.7305                       0

3         $1.25        0.6244                      0.7805

4          $25         0.5337                      13.3425

Current market value                          $15.91

Refer to the discounting factor or present value factor table

Hence, the current market value is $15.91