You own 1000 shares of stock in Armstrong Corporation. You will receive a $1.85 per share dividend

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You own 1000 shares of stock in Armstrong Corporation. You will receive a $1.85 per share dividend in one year. In two years, Armstrong will pay a liquidating dividend of $58 per share. The required return on Armstrong 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. Dividends will be in the form of an annuity.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Fundamentals of Corporate Finance

ISBN: 978-0071051606

8th Canadian Edition

Authors: Stephen A. Ross, Randolph W. Westerfield

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