Barn Wood Interiors announced today that it is going out of business.As of today,no more regular dividends will be paid.The firm will,however,pay two liquidating dividends.The first will be paid one year from now in the amount of $14 a share.The second and final payment will be paid two years from now at an estimated $38 a share.What is the value of this stock today at a discount rate of 18.7 percent?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the two liquidating dividends is $38.76. The first dividend of $14 is discounted at 18.7% for one year, which gives a present value of $11.80. The second dividend of $38 is discounted at 18.7% for two years, which gives a present value of $26.96. The sum of these two present values is $38.76.

Barn Wood Interiors Announced Today That It Is Going Out