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Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You expect the stock...

Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You expect the stock to pay a dividend of $0.75 per share at the end of Year 1 and $1.75 per share at the end of Year 2. You believe you can sell the stock for $15.50 at the end of Year 2. What is the value per share of the company’s stock if the required rate of return is 12 percent?

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Answer #1
Price of Stock today is the present value of inflows received during the two years of life:
Therefore, the present value is computed as under:
Year Inflows PVf at 12% Present value
1 0.75 0.892857 0.669643
2 1.75 0.797194 1.395089
2 15.5 0.797194 12.35651
Present value 14.42
Therefore, the price value of stock today is $ 14.42
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