Lizzy's Pet Parlour Ltd has not paid out any dividend in the last three years.It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown.Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years.What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent?

Question

Quizplus · Accepted Answer

The present value of the dividends is calculated by discounting each expected dividend back to the present value using the formula PV = D / (1 + r)^n, where D is the dividend, r is the discount rate, and n is the number of years until the dividend is received. The calculation is as follows: PV = $2.50 / (1.15)^3 + $3.00 / (1.15)^4 + $3.00 / (1.15)^5 = $1.64 + $1.71 + $1.50 = $4.85.

Lizzy's Pet Parlour Ltd Has Not Paid Out Any Dividend