Keidis Industries will pay a dividend of $2.85, $3.95, and $5.15 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $46.00 per share. The return on similar stocks is 9.5 percent. What is the current stock price

$41.82

Explanation:

Present value factor = 1 ÷ (1 + r)^n

Current stock price  = $41.82

Working Note

Year Cash flowPresent Value factorcash flow × Present factor

12.85       1 ÷ (1.095)^1 = 0.91324     2.85 × 0.91324 = 2.6027

23.95       1 ÷ (1.095)^2 = 0.83401    3.95 × 0.83401 = 3.2943

35.15              1 ÷ (1.095)^3 = 0.76165    5.15 × 0.76165 = 3.9224

446.00       1 ÷ (1.095)^4 = 0.69557    46.00 × 0.69557 =31.99622

                             Current stock price                                         $41.82

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