Question

The company plans to dissolve in two years. At the present time, dividends at each date are set equal to the cash flow of $18,000. There are 100 shares outstanding, so the dividend per share is $180. Assume an 8% required rate of return. What is the present value of a share of stock

Answer 1

Answer:

$321 per share.

Explanation:

Given that

Annual cash flows  = $18,000

Number of shares outstanding = 100

Dividend per share = $180

Required rate of return = 8%

So by considering the above information, the present value of the share of a stock is

Present value of share = Dividend received × Present value of $1 received every year at the end of year 2  at 8%

= $180 × 1.7832

= $321 per share.