Goodie Corporation produces goods that are very mature in their product life cycles. Goodie Corporation is expected to have per share FCFE in year 1 of $2.00, per share FCFE of $1.50 in year 2, and per share FCFE of $1.00 in year 3. After year 3, per share FCFE is expected to decline at a rate of 1% per year. An appropriate required rate of return for the stock is 10%. The first three dividends are worth _______ today.

Question

Quizplus · Accepted Answer

The present value of the first three dividends is $3.81. The present value of the dividend in year 1 is $2.00/(1.10^1) = $1.82. The present value of the dividend in year 2 is $1.50/(1.10^2) = $1.36. The present value of the dividend in year 3 is $1.00/(1.10^3) = $0.87. The total present value of the first three dividends is $1.82 + $1.36 + $0.87 = $3.81.

Goodie Corporation Produces Goods That Are Very Mature in Their