Question

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 company's stock is 20 percent. Suppose you want only $3,000 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 dollar amount, e.g., 32..) Homemade dividend

Answer 1

Dividend in year 1 = 2,200 Shares *$1.6 = $3,520

Dividend asked for = $3,000

Dividend reinvested = $3,520 - $3,000 =$520

Required rate = 20%

Value at the end of year 2 = 520 *120% =$624

Liquidating dividend =2,200*60 = $132,000

Total Dividend = $624 + $132,000 = $132,624