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    Shares Given Prospective Dividend Amounts

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    You own $157,947.72 of Big Bucks Corp. stock. A year from now you expect a dividend of $1.00, $1.25 for the next two years and $1.35 for years four and five. At the end of year five you sell you stock for $45.78. Your dividends are taxed at 28% and your capital gains are taxed at 15%. You are expecting to earn 6% per year on your investment. How many shares (K) of stock do you own?

    K = _____________shares

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    Solution Preview

    Let x be the number of shares owned

    We would basically calculate all the future cash flows and discount them back to current

    Year 1 cash flow = $1.00 * (1 - 28%) = $0.72
    Present value of year 1 cash flow = $0.72 / (1 + 6%)^1 = $0.68

    Year 2 cash flow ...

    Solution Summary

    The solution calculates the number of shares given prospective dividend amounts.