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The Sly Fox pays a constant dividend of $1.46 a share. The company announced today that it will continue to pay the dividend for another 2 years and then in Year 3 it will pay a final liquidating dividend of $15.25 a share. What is one share of this stock worth today at a required return of 18.5 percent?

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Answer:

One share of this stock worth today at a required return of 18.5 percent is $11.44

Explanation:

In order to calculate what is one share of this stock worth today at a required return of 18.5 percent we would have to calculate the following formula:

Stock value= D1/ (1+r) t+ D2/ (1+r) t+ D3/ (1+r) t

Stock value = 1.46/1.185+ 1.46/1.1852+ 15.25/1.1853

Stock value= 1.2320+ 1.0397+ 9.1646

Stock value=$11.44

One share of this stock worth today at a required return of 18.5 percent is $11.44

ogorwyne

Answer:

$11.44

Explanation:

At a required return of 18.5%, one share of this stock is worth $11.44.

From the question,

D1 = 1.46

D2 = 1.46

D3 = 15.25

Stock value = $1.46 / (1 + .185)^1 + $1.46 / (1 + .185)^2 + $15.25 / (1 + .185)^3 =

1.46/1.185 + 1.46/1.404 + 15.25/1.664

= 1.2320 + 1.0398 + 9.165

= $11.44

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