Question

Deluxe Company expects to pay a dividend of $2 per share at the end of year 1, $3 per share at the end of year 2, and then be sold for $32 per share at the end of year 2. If the required rate of return on the stock is 15%, what is the current value of the stock?

please show me all the steps and answers, thank you

Answer 1

D1 = $2

D2 = $3

And at the end of year 2, the stock is sold at $32. The required rate of return = 15%

Current Price = [$2 * (1/1.15)¹] + [$3 * (1/1.15)²] + [$32 * (1/1.15)²]

Current Price = $1.739 + $2.268 + $24.20

Current Price = $28.204