You own 1,000 shares of stock in Moonlight Corp. You will receive a $.80 per share dividend
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Question:
You own 1,000 shares of stock in Moonlight Corp. You will receive a $.80 per share dividend in one year. In two years, Moonlight will pay a liquidating dividend of $45 per share. The required return on Moonlight stock is 10 percent.
a. What is the current share price of your stock (ignoring taxes)?
b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?
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