JJ Industries will pay a regular dividend of $2.90 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $65 per share, and the company will cease operations. If the discount rate is 12 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
JJ Industries will pay a regular dividend of $2.90 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $65 per share, and the company will cease operations. If the discount rate is 12 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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JJ Industries will pay a regular dividend of $2.90 per share for each of the next four years. At the end of the four years, the company will also pay out a liquidating dividend of $65 per share, and the company will cease operations. If the discount rate is 12 percent, what is the current value of the company’s stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Expert Solution
Step 1
A model that helps to evaluate the value of the stock by discounting the dividend earned on the stock is term as the DDM (dividend discount model).
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