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

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

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?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...