The Red Bud Co. pays a constant dividend of $2.50 a share. The company announced
ID: 2654775 • Letter: T
Question
The Red Bud Co. pays a constant dividend of $2.50 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.1 percent?
$4.45
$2.70
$5.00
$2.81
$6.95
The Red Bud Co. pays a constant dividend of $2.50 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.1 percent?
Explanation / Answer
ANSWER : a - $ 4.45 To find the worth /value of the stock ,we need to find the PV of its remaining cash flows in the form of dividends , discounting them @ 8.1% ie. 2.5/(1+0.081)+ 2.5/(1+0.081)^2 ie.2.31+2.13 ie.$ 4.45
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.