Final answer:
To calculate the value of one share of common stock in KB Adventures ten years from now, you can use the constant rate of growth dividend policy. The present value of the future dividends can be determined using the given information of the annual dividend, last dividend, and discount rate. The value of one share of common stock in KB Adventures will be approximately $37.77 ten years from now at a 12.5 percent discount rate.
Step-by-step explanation:
To determine the value of one share of common stock in KB Adventures ten years from now, we need to calculate the present value of future dividends using the constant rate of growth dividend policy. The given information includes an annual dividend of $3.12 next year and a last dividend of $3.00. We also know that the discount rate is 12.5 percent.
To calculate the future value, we can use the formula:
PV = D/(r - g)
Where: PV is the present value of the dividend, D is the dividend, r is the discount rate, and g represents the dividend growth rate.
In this case, the dividend growth rate can be calculated as (3.12 - 3.00) / 3.00 = 0.04. Substituting the values into the formula, we have:
PV = 3.12 / (0.125 - 0.04)
Solving the equation, the present value is approximately $37.77. Therefore, one share of this common stock will be worth $37.77 ten years from now at a 12.5 percent discount rate.