Question

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now. The firm's liquidation plan calls for annual dividends of $3, $6, and $36 over the next 3 years, respectively. What is the current value of this stock given a discount rate of 14 percent?

Answer 1

Current Value = $31.50

Step-by-step explanation:

The stock price formula in general is:

`P_n=(D_n)/((1+g)^n)`

Where

P is the stock price

D is the dividend

g is the growth rate, discount rate

Now, we have to find the sum of all the prices in each year:

`(3)/(1+0.14)+(6)/((1+0.14)^2)+(36)/((1+0.14)^3)= 31.50`

Current Value = $31.50