Cayman Boats plans to pay a $1.75 a share dividend at the end of each of the next 2 years. At the end of year 3, it will pay a final liquidating dividend of $25 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 10 percent?

Explanation:

The current stock value is the most dependable indicator of a particular investment/security's present value. When it comes to bond, the current price is frequently quoted as 10% of par or face value.

The step by step diagram can be seen below:

Year               Cash flow $                C,P,F                  Present value $    

0                                     -                       1.000                              -  

1                                 1.75                         0.909                         1.59

2                                1.75                         0.826                         1.45

3                               25.00                      0.751                       18.78

Current stock value                                                       $ 21.82