Kaitlin is contemplating investing in Cocoa Beach Tans.She estimates that the company will pay the following dividends per share at the end of the next four years and that the current price of the company's common stock, which is $100 per share, will remain unchanged. If Kaitlin wants to earn 12 percent on her investment and plans to sell the investment at the end of the fourth year, how much would she be willing to pay for one share of common stock? (Round all calculations to the nearest cent.)
A) $130. 00
B) $119. 07
C) $85. 90
D) $82. 00

Question

Kaitlin is contemplating investing in Cocoa Beach Tans.She estimates that the company will pay the following dividends per share at the end of the next four years and that the current price of the company's common stock, which is $100 per share, will remain unchanged.  If Kaitlin wants to earn 12 percent on her investment and plans to sell the investment at the end of the fourth year, how much would she be willing to pay for one share of common stock? (Round all calculations to the nearest cent.)
A) $130. 00 
B) $119. 07 
C) $85. 90 
D) $82. 00

Quizplus · Accepted Answer

Present value = Present value of dividends + Present value of proceeds
= [($6* 0.89286 from Table 4) + ($7 * 0.79719 from Table 4) + ($8* 0.71178 from Table 4) + ($9 * 0.63552 from Table 4)] + ($100 * 0.63552 from Table 4)
= $5.36 + $5.58 + $5.69 + $5.72 + $63.55 = $85.90

Kaitlin Is Contemplating Investing in Cocoa Beach Tans