Question

worthy ware pays a constant dividend of $1.46 per share. the company announced today that it will continue to pay the dividend for another 2 years and then in year 3 it will pay a final liquidating dividend of $15.25 per share. what is one share of this stock worth today at a required return of 18.5 percent?

Answer 1

The value of one share of Worthy Ware stock is $13.874 today.

Step-by-step explanation:

To calculate the value of one share of stock in Worthy Ware today, we will use the dividend discount model (DDM). According to the problem, the company will pay a constant dividend of $1.46 per share for the next 2 years and then in year 3 it will pay a final liquidating dividend of $15.25 per share.

The DDM formula is: Stock Value = (Dividend / (1 + R)^1) + (Dividend / (1 + R)^2) + ... + (Dividend / (1 + R)^n) + (Liquidating Dividend / (1 + R)^n), where R is the required return and n is the number of years.

Substituting the given values into the formula, we have:

Stock Value = (1.46 / (1 + 0.185)^1) + (1.46 / (1 + 0.185)^2) + (15.25 / (1 + 0.185)^3)

Simplifying the equation, we get:

Stock Value = 1.236 + 1.043 + 11.595

Stock Value = $13.874

Therefore, one share of Worthy Ware stock is worth $13.874 today.