Question

Jack Hammer invests in a stock that will pay dividends of $3.17 at the end of the first year; $3.64 at the end of the second year; and $4.11 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $67. What is the present value of all future benefits if a discount rate of 10 percent is applied

Answer 1

Total PV= $59.31

Step-by-step explanation:

Giving the following information:

Cash flows:

Cf1= $3.17

Cf2= $3.64

Cf3= 4.11 + 67= $71.11

Discount rate= 10%

To calculate the present value, we need to use the following formula on each cash flow:

PV= Cf / (1+i)^n

PV1= 3.17/1.1= 2.88

PV2=3.64/1.1^2= 3

PV3= 71.11/1.1^3= 53.43

Total PV= $59.31