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Dixie Mart plans to pay dividends of $1.36, $1.15, $1.35, and $.40 at the end of the next four years, respectively. After that, the company will be sold and shareholders are expected to receive $82.40 per share in Year 6 when the sale should be finalized. If the required return is 11.4 percent, what is the current value of one share of this stock

Respuesta :

Answer:

$46.50

Explanation:

The current value of the stock is the present value of the stock

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $1.36

Cash flow in year 2 = $1.15

Cash flow in year 3 = $1.35

Cash flow in year 4 =  $.40

Cash flow in year 5 = 0

Cash flow in year 6 = $82.40

I = 11.4%

PV = $46.50

To determine the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

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