JJ Industries will pay a regular dividend of $1.20 per share for each of the nex
ID: 2613337 • Letter: J
Question
JJ Industries will pay a regular dividend of $1.20 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 8 percent, and the current share price is $52, what must the liquidating dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
JJ Industries will pay a regular dividend of $1.20 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 8 percent, and the current share price is $52, what must the liquidating dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
- Price of a share is the present value of all the future cash flows. Thus,
52 = 1.20/(1.08)1 + 1.20/(1.08)2 + 1.20/(1.08)3 + 1.20/(1.08)4 + x/(1.08)5
52 = 3.9746 + x/1.4693
x = 70.57
Thus, Liquidating dividend = $70.57
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