Berkshire Homes recently paid $2.20 as an annual dividend. Future dividends are projected at $2.30, $2.50, and $2.75 over the next 3 years, respectively. Beginning four years from now, the
Dividend is expected to increase by 3% annually. What is one share of this stock worth to you today
If you require an 11% rate of return?

Question

Quizplus · Accepted Answer

The correct answer is A.The present value of the dividends is $32.00. This is calculated by dividing the annual dividend by the required rate of return and then multiplying by the present value factor for the number of years the dividend is expected to be paid. In this case, the annual dividend is $2.20, the required rate of return is 11%, and the dividend is expected to be paid for 3 years. The present value factor for 3 years at 11% is 2.48685. Therefore, the present value of the dividends is $2.20 x 2.48685 = $32.00.

Berkshire Homes Recently Paid $2