Question

Currently, you own 2,230 common shares of a company. The company will provide a dividend of $1.65 per share next year, no dividend in two years from today, and a liquidating dividend of $35.70 per share in three years from today. The require return on the common shares is 8.77%. You want a total cash flow of just $650 next year and will use any excess received to buy more shares of the company. How much total dividends will you receive in three years from today after the additional share purchase in the first year? Options: $76,956 $79,035 $81,115 $83,195 $85,275

Answer 1

a	Number of share hold currently =		2230
b	Next year dividend =
	2230*1.65		3680
c	Surplus cash flow =3680-650		3030
d	Price at the end of year 1=
	35.7/(1+8.77%)^2		30.18
e=c/d	Number of share that can be bought =		100
f=e+a	Total share =		2,330
g=f*35.7	Total 3rd year dividend=		83,195
	Ans =		$   83,195