On January 1, 2012, Jessica owns 1.000 shares of Sada Company stock. Sada will p

Question

On January 1, 2012, Jessica owns 1.000 shares of Sada Company stock. Sada will pay a dividend of S64.00 per share on December 31, 2012, followed by a final liquidating dividend of $43.75 per share paid on December 31, 2013. Sada stock has a required return of 25%. Jessica's objective is to end up on December 31, 2012, with an amount of cash from her investment in Sada that equals the amount of cash she will receive from her investment in Sada on December 31,2013. To accomplish her goal, Jessica is willing to buy additional Sada stock or to sell some of her Sada stock on December 31, 2012, immediately after the first dividend is paid. If she does this, the total dividend payment she will receive on December 31, 2013 is $53,875. $39,600. $55,000. $61,875.

Explanation / Answer

c) $55,000

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