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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?
A. $12.92B. $11.44C. $12.07D. $13.09E. $14.20

Respuesta :

Answer:

Option (B) is correct.

Explanation:

Given that,

D1 = 1.46

D2 = 1.46

D3 = 15.25

[tex]Stock\ value=\frac{D1}{(1+r)^{t}}+\frac{D2}{(1+r)^{t}}+\frac{D3}{(1+r)^{t}}[/tex]

[tex]Stock\ value=\frac{1.46}{(1.185)^{1}}+\frac{1.46}{(1.185)^{2}}+\frac{15.25}{(1.185)^{3}}[/tex]

                           = 1.2320 + 1.0397 + 9.1646

                            = 11.44

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