Question

10-19)

The next three annual dividends paid by Oxygen Optimization stock are expected to be 4.33 dollars in one year, 3.88 dollars in two years, and 5.94 dollars in three years. The price of the stock is expected to be 94.83 dollars in two years. The expected annual return for the stock is 13.71 percent. What is the current price of one share of Oxygen Optimization stock?

Answer #1

Stock price today = $84.19

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Stock current price is the sum of discounted value of all the cash inflow from the stock

Year |
cash flow |
PV factor @ 13.71% [1/(1+r)^n |
PV of cash flow |

1 |
4.33 |
0.8794 |
3.80793246 |

2 |
94.83 + 3.88 |
0.7734 |
76.34205264 |

3 |
5.94 |
0.6801 |
4.040084665 |

Total |
84.19006977 |

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