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BadCo is expected to pay dividends of $11.48, $6.58, $4.06, and $8.11 at the end of...

BadCo is expected to pay dividends of $11.48, $6.58, $4.06, and $8.11 at the end of each of the next 4 years. The The last dividend will be a liquifying dividend. This means the company will sell off its remaining assets and use the proceeds to pay this final dividend. The company will then stop operations and cease to exist. If the required return on the stock is 11.62%, what is the stock of BadCo worth today?

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Answer #1

The price of the stock today is computed as shown below:

= Dividend at the end of year 1 / (1 + required rate of return)1 + Dividend at the end of year 2 / (1 + required rate of return)2 + Dividend at the end of year 3 / (1 + required rate of return)3 + Dividend at the end of year 4 / (1 + required rate of return)4  

= $ 11.48 / 1.11621 + $ 6.58 / 1.11622 + $ 4.06 / 1.11623 + $ 8.11 / 1.11624

= $ 23.71 Approximately

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