You own 300 shares of Abco,Inc.stock.The company has stated that it plans on issuing a dividend of $.60 a share one year from today and then issuing a final liquidating dividend of $2.20 a share two years from today.Your required rate of return is 10%.Ignoring taxes,what is the value of one share of this stock today?

Question

Quizplus · Accepted Answer

The value of one share of Abco, Inc. stock today is $2.36. This is calculated by discounting the future dividends back to the present at a rate of 10%. The present value of the dividend to be paid one year from today is $0.60 / (1 + 0.10) = $0.5455. The present value of the liquidating dividend to be paid two years from today is $2.20 / (1 + 0.10)^2 = $1.8182. The total present value of the dividends is $0.5455 + $1.8182 = $2.3637, which is rounded to $2.36.

You Own 300 Shares of Abco,Inc