BC 'n D just paid its annual dividend of €.60 a share.The projected dividends for the next ﬁve years are €.30, €.50, €.75, €1.00, and €1.20, respectively.After that time, the dividends will be held constant at €1.40.What is this equity worth today at a 6% discount rate?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the dividends is €20.48. This is calculated by taking the sum of the present values of each dividend, which are:€0.30 / (1.06^1) = €0.283€0.50 / (1.06^2) = €0.443€0.75 / (1.06^3) = €0.658€1.00 / (1.06^4) = €0.849€1.20 / (1.06^5) = €0.990€1.40 / (1.06^6) = €1.226€1.40 / (1.06^7) = €1.156€1.40 / (1.06^8) = €1.089€1.40 / (1.06^9) = €1.027€1.40 / (1.06^10) = €0.968The sum of these present values is €20.48.

BC 'N D Just Paid Its Annual Dividend of €