Question: Management has recently announced that expected dividends for the next three years will be as follows: Year Dividend 1 .. ...... $3.00 2 ......... 2.25

Management has recently announced that expected dividends for the next three years will be as follows:

Year Dividend

1 .. ...... $3.00

2 ......... 2.25

3 .......... 1.50

The firm’s assets will then be liquidated and the proceeds invested in the preferred stock of other firms so that the company will be able to pay an annual dividend of $1.25 indefinitely. If your required return on investments in common stock is 10 percent, what is the maximum you should pay for this stock?

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