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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finance
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![Problem 17-10 Homemade Dividends [LO2]
You own 1,100 shares of stock in Avondale Corporation. You will receive a $1.50 per
share dividend in one year. In two years, the company will pay a liquidating dividend of
$45 per share. The required return on the company's stock is 20 percent.
a. Ignoring taxes, what is the current share price of your stock? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. If you would rather have equal dividends in each of the next two years, how many
shares would you sell in one year? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
c. What would your cash flow be for each year for the next two years? Hint: Dividends
will be in the form of an annuity. (Do not round intermediate calculations.)
a. Share price
b. Number of shares
c. Cash flow](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F01d01b29-ede7-42ba-8dcd-8c0b18e94cc8%2Fe71fab47-45a7-4b4b-ba55-63a92b8d47ed%2Fnnwwks_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 17-10 Homemade Dividends [LO2]
You own 1,100 shares of stock in Avondale Corporation. You will receive a $1.50 per
share dividend in one year. In two years, the company will pay a liquidating dividend of
$45 per share. The required return on the company's stock is 20 percent.
a. Ignoring taxes, what is the current share price of your stock? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. If you would rather have equal dividends in each of the next two years, how many
shares would you sell in one year? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
c. What would your cash flow be for each year for the next two years? Hint: Dividends
will be in the form of an annuity. (Do not round intermediate calculations.)
a. Share price
b. Number of shares
c. Cash flow
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