Question

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now. The firm's liquidation plan calls for annual dividends of $3, $6, and $36 over the next 3 years, respectively. What is the current value of this stock given a discount rate of 14 percent?

Answer 1

Answer:

Current Value = $31.50

Explanation:

The stock price formula in general is:

$P_n=\frac{D_n}{(1+g)^n}$

Where

P is the stock price

D is the dividend

g is the growth rate, discount rate

Now, we have to find the sum of all the prices in each year:

$\frac{3}{1+0.14}+\frac{6}{(1+0.14)^2}+\frac{36}{(1+0.14)^3}= 31.50$

Current Value = $31.50