You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent. a. What is the current share price of your stock (ignoring taxes)?  b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent.

a. What is the current share price of your stock (ignoring taxes)? 

b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2? 

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