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irga5000 [103]
3 years ago
11

Your local toy store just announced that it will pay a $4 dividend next year, $3 the following year, and then a final liquidatin

g dividend of $46 a share in year 3. At a discount rate of 14 percent, what should one share sell for today?
Business
1 answer:
topjm [15]3 years ago
8 0

Answer:

It would sell for 761.49 dollars

Explanation:

Generally, stock prices are determined on stock market based on supply and demand mechanism. However, according to the discount dividend model present value of stock could be calculated as dividend per share/(cost of capital equity-growth rate). Growth rate between year 1 and 2 is 3-4/4 equals to -0.25%. From year 2 until year 3 it is 46-3/3 equals to 14.33%. Now we can take arithmetic average of these two and we get 7.04%( 14.33-0.25/2). Finally share could sell today for 46+3+4/(14-7.04%) equals to 761.49 dollars

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Serjik [45]

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Explanation:

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svp [43]

Answer:

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Explanation:

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Some other options in question are not connected to something like the given scenario. And the above will be a good alternative.

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Answer:

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