Question

Bakers corp will pay a dividend of 5.15 8.05 and 11.25 per share for each of the next three years respectively. the company will then close its doors. investors will require a return of 11 percent on the companys stock what is the current stock price?

Answer 1

Answer: $19.40

Explanation:

Based on the information given in the question, the following can be deduced:

D1 = $5.15

D2 = $8.05

D3 = $11.25

Rate of return = 11% = 0.11

The current stick price will be calculated as:

= 5.15/(1 + 0.11) + 8.05/(1 + 0.11)^2 + 11.25/(1 + 0.11)^3

= 5.15/1.11 + 8.05/(1.11)^2 + 11.25/(1.11)^3

= $4.64 + $6.53 + $8.23

= $19.40