Question

The next three annual dividends paid by Oxygen Optimization stock are expected to be 6.94 dollars...

The next three annual dividends paid by Oxygen Optimization stock are expected to be 6.94 dollars in one year, 3.58 dollars in two years, and 6.11 dollars in three years. The price of the stock is expected to be 88.08 dollars in two years. The expected annual return for the stock is 9.66 percent. What is the current price of one share of Oxygen Optimization stock?

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Answer #1
Discount rate 9.660%
Year 0 1 2
Cash flow stream 0 6.94 91.66
Discounting factor 1.000 1.097 1.203
Discounted cash flows project 0.000 6.329 76.223
NPV = Sum of discounted cash flows
NPV stock = 82.55 (stock price)
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

year 2 cash flow = stock price + year 2 dividend

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