You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per...

Question:

You own 1,650 shares of stock in Avondale Corporation. You will receive a dividend of $1.50 per share in one year. In two years, Avondale will pay a liquidating dividend of $54 per share. The required return on the company's stock is 20 percent. Suppose you want only $900 total in dividends the first year. What will your total homemade dividend be in two years?

Liquidating Dividend:

A liquidating dividend is a final distribution of cash made to shareholders. While companies rarely pay liquidating dividends, international projects set up as joint ventures are much more likely to do as the venture terminates.

Answer and Explanation:

One year from today (after the first dividend), the stock price will be the value of the liquidating dividend discounted by one period.

Let Pn be the...

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Homemade Dividends: Definition & Examples

from Finance 101: Principles of Finance

Chapter 16 / Lesson 2
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