Answered

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We are fairly certain The ABC Company will pay $4, $4.50, and $5 in dividends at the end of years 1, 2, and 3 respectively. We expect the stock share to sell for $70.00 at the end of year 3. An investment with comparable risk is earning 8%. What is the value today of one share of The ABC Company

Sagot :

Answer:

67.10

Explanation:

The value of the stock can be determined by calculating the present value of the dividends

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $4

Cash flow in year 2 = $4.50

Cash flow in year 3 = $5 + 70 = $75

I = 8 %

PV = $67.10

To find 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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