A corporation is scheduled to produce a line of products for the next ten years and then go out of business. The firm will pay an annual dividend of $1.75 for only those ten years. What is the present value of a share for this company if we want an 8% annual return on the stock?

$11.74 approximately

Explanation:

The present value of a share is computed as shown below:

= Dividend in year 1 / ( 1 + required rate of return )1 + Dividend in year 2 / ( 1 + required rate of return )2 + Dividend in year 3 / ( 1 + required rate of return )3 + Dividend in year 4 / ( 1 + required rate of return )4 + Dividend in year 5 / ( 1 + required rate of return )5 + Dividend in year 6 / ( 1 + required rate of return )6 + Dividend in year 7 / ( 1 + required rate of return )7 + Dividend in year 8 / ( 1 + required rate of return )8 + Dividend in year 9 / ( 1 + required rate of return )9 + Dividend in year 10 / ( 1 + required rate of return )10

= $11.74 approximately

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