You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60

Question

You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $48 per share. The required return on Avondale stock is 20 percent. Suppose you want only $800 total in dividends the first year.

What will your homemade dividend be in two years? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

You own 1,100 shares of stock in Avondale Corporation. You will receive a $2.60 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $48 per share. The required return on Avondale stock is 20 percent. Suppose you want only $800 total in dividends the first year.

Explanation / Answer

Answer:

Dividend in year 1 = 1100 Shares *$2.6 = $2860

Dividend asked for =$800

Hence Dividend reinvested = 2860 -800 =$2060

Required rate is 20%

Hence value at the end of year 2 = 2060 *120% =$2472

Add: Liquidating dividend =1100*48 = $52800

Hence Total Dividend =2472 +52800 = $55272

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