Question

Alpha Wood Interiors announced that it is going out of business. As of today, no more regular dividends will be paid. The firm will, however, pay two liquidating dividends. The first will be paid one year from now in the amount of $17 a share. The second and final payment will be paid two years from now at an estimated $32 a share. What is the value of this stock today at a discount rate of 6 percent

Answer 1

$44.52

Step-by-step explanation:

The value of the stock today can be determined by finding the present value of the liquidating dividends

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = 17

Cash flow in year 1 = 32

I = 6%

PV = $44.52

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