Question

Keidis Industries will pay a dividend of $4.35, $5.45, and $6.65 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $61.00 per share. The return on similar stocks is 9.4 percent. What is the current stock price

Answer 1

Answer:

$56.19

Explanation:

Current stock price can be determined by calculating the present value of the dividend payments

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = 4.35

Cash flow in year 2 = 5.45

Cash flow in year 3 = 6.65

Cash flow in year 4 = 61

I = 9.4

PV = $56.19

To find the PV using a financial calculator:

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