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    Present Value and Bond

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    The CFO invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 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 $33. What is the present value of all future benefits if a discount rate of 11% is applied? (Round all values to two places to the right of the decimal point.)

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    Solution Preview

    The cash flows are given as

    Year 1 ...2.00
    Year 2...2.20
    Year 3...2.40 + 33 ( ...

    Solution Summary

    The solution explains the calculation of present value of cash flows.