Question

You own 1,900 shares of stock in Avondale Corporation. You will receive a dividend of $2.00...

You own 1,900 shares of stock in Avondale Corporation. You will receive a dividend of $2.00 per share in one year. In two years, Avondale will pay a liquidating dividend of $57 per share. The required return on Avondale stock is 20 percent.

  

Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

  

  Share price $

  

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. Round your answer to 2 decimal places, e.g., 32.16.)

  

  Number of shares

What would your cash flow be for each year for the next two years if you create equal homemade dividends? Hint: Dividends will be in the form of an annuity. (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

  Cash flow $

Homework Answers

Answer #1

Total Number of stock owns = 1,900

Dividend per share in first year = $2.00

Total value of dividend receives in first year = 1,900 × $2

= $3,800

Since you need just $1,900 dividend in first year so remaining sum you have reinvested in company as it were.

So total value of reinvestment = $3,800 - $1,900

= $1,900

Required rate of return = 20%

Value of reinvestment in year 2 = $1,900 × (1 + 20%)

= $2,280

Liquidating dividend got in year 2 = $57

Since you have gotten just $1,900 in year 1 and reinvest $1,900 in company.

So total homemade dividend receives in year 2 = $57 + ($2,280/1,900)

= $57 + $1.20

= $58.20

Along these lines, total homemade dividend receives in year 2 is $58.20 per share.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You own 1,800 shares of stock in Avondale Corporation. You will receive a dividend of $1.50...
You own 1,800 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per share in one year. In two years, Avondale will pay a liquidating dividend of $80 per share. The required return on Avondale stock is 25 percent.    Ignoring taxes, what is the current share price of your stock? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)      Share price $    If you would rather have equal...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.60 per share...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.60 per share dividend in one year. In two years, the company will pay a liquidating dividend of $60 per share. The required return on the stock is 20 percent. Ignoring taxes, what is the current share price of the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price $ If you would rather have equal dividends in...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.40 per share...
You own 2,200 shares of stock in Avondale Corporation. You will receive a $1.40 per share dividend in one year. In two years, the company will pay a liquidating dividend of $48 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...
You own 1,800 shares of stock in Avondale Corporation. You will receive a $1.50 per share...
You own 1,800 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 $80 per share. The required return on the company's stock is 25 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...
S17-11 Homemade Dividends [LO2] You own 1,000 shares of stock in Avondale Corporation. You will receive...
S17-11 Homemade Dividends [LO2] You own 1,000 shares of stock in Avondale Corporation. You will receive a $3.15 per share dividend in one year. In two years, the company will pay a liquidating dividend of $57 per share. The required return on the company’s stock is 15 percent. Suppose you want only $1,500 total in dividends the first year. What will your homemade dividend be in two years? (Do not round intermediate calculations and round your answer to 2 decimal...
You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50...
You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per share in one year. In two years, Avondale will pay a liquidating dividend of $54 per share. The required return on Avondale stock is 20 percent.    Ignoring taxes, what is the current share price of your stock?       If you would rather have equal dividends in each of the next two years, how many shares would you sell in one year?...
You own 1,100 shares of stock in Avondale Corporation. You will receive a dividend of $2.60...
You own 1,100 shares of stock in Avondale Corporation. You will receive a dividend of $2.60 per share in one year. In two years, the company will pay a liquidating dividend of $75 per share. The required return on the company's stock is 20 percent. Suppose you want only $2,000 total in dividends the first year. What will your homemade dividend be in two years? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g.,...
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share...
You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, the company will pay a liquidating dividend of $75 per share. The required return on the company's stock is 20 percent. 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...
You own, 1000 shares of stock in Avondale Corporation. You will receive a $1.95 per share...
You own, 1000 shares of stock in Avondale Corporation. You will receive a $1.95 per share dividend in one year. In two years, the company will pay a liquidating dividend of $65 per share. The required return on the stock is 15 percent. What is the current share price of your stock(ignoring taxes)? if you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends. (hint: Dividends will...
You own 5,000 shares of stock in a firm. You will receive $4 per share dividend...
You own 5,000 shares of stock in a firm. You will receive $4 per share dividend in one year. in two years the firm will pay a liquidating dividend of $60 per share. The required return on the company's stock is 16 percent. Ignore taxes, transaction costs, and other imperfections. a. Find the current share price of the stock. b. If you would rather have equal dividend on each of the next two years. Show how much you can achieve...