Jack Hammer invests in a stock that will pay dividends of $3.19 at the end of th

Question

Jack Hammer invests in a stock that will pay dividends of $3.19 at the end of the first year $3.68 at the end of the second year, and $4.17 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $69. What is the present value of all future benefits if a discount rate of 12 percent is applied? Use Appendix B for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Dividend Present Value 3.19 3.68 4.17 69.00 Total

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

Dividend Present value 3.19 (3.19/1.12)=$2.85 3.68 (3.68/1.12^2)=$2.93 4.17 (4.17/(1.12^3)=$2.97 69 (69/(1.12^3)=$49.11 Total $57.86(Approx).

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