Antiquated Products Corporation produces goods that are very mature in their product life cycles.Antiquated Products Corporation is expected to pay a dividend in year 1 of $1.00,a dividend of $0.90 in year 2,and a dividend of $0.85 in year 3.After year 3,dividends are expected to decline at a rate of 2% per year.An appropriate required rate of return for the stock is 8%.The stock should be worth ______.

Question

Quizplus · Accepted Answer

The correct answer is A because the stock should be worth $8.49. The present value of the dividends is calculated as follows:PV = $1.00 / (1 + 0.08)^1 + $0.90 / (1 + 0.08)^2 + $0.85 / (1 + 0.08)^3 + $0.85 * (1 - 0.02) / (0.08 - 0.02) * (1 / (1 + 0.08)^3)= $0.9259 + $0.8182 + $0.7679 + $7.0000= $8.49

Antiquated Products Corporation Produces Goods That Are Very Mature in Their