You own 2,200 shares of Deltona Hardware. The company has stated that it plans o

Question

You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?
A. $2.30
B. $2.43
C. $2.52
D. $2.92
E. $3.32

You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?

Explanation / Answer

value of 2200 shares are = 924/1.16 + 6380/(1.16)^2

V = 5537.93

so value of one share =  5537.93/2200 = 2.50$

so its option C

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