Question

You own 2,400 shares of Stephen Inc. The company plans on issuing a dividend of $.75 a share at the end of this year and then issuing a final liquidating dividend of $8.20 a share at the end of next year. Your required rate of return on this security is 17 percent. Ignoring taxes, what is the value of one share of this stock to you today?

Answer 1

the one share value at today is $6.63

Step-by-step explanation:

The computation of the one share value at today is shown below:

Price is

= (Dividend at the year 1) ÷ (1 + required rate of return)^1 + (Dividend at the year 2) ÷ (1 + required rate of return)^2

= ($0.75) ÷ (1 + 0.17)^1 + ($8.20) ÷ (1 + 0.17)^2

= 0.641025641 + 5.990211118

= $6.631236759

hence, the one share value at today is $6.63