Problem #1

Part A)

JJ Industries will pay a regular dividend of $2.40 per share for each of the next four years. At the end of the fourth year, the company will also pay out a $40 per share liquidating dividend, and the company will cease operations. If the discount rate is 10%, what is the current value of the companys stocks? (10 points)

Part B)

In Part A, suppose the current stock price is $60. If all other information remains the same, what must the liquidating dividend be? (10 points) [Q: Why do we have the question? A: So we know how to measure the market expectations.]