JJ Industries will pay a regular dividend of $1.50 per share for the next four years. At the end of the fourth year, the company will pay a $48 per share liquidating dividend and cease operations. Using a 9% discount rate, the current value of JJ Industries stock is $38.86 per share.

1. JJ Industries will pay a regular dividend of $1.50 per share for each of the next four years. At the
end of the four years, the company will also pay out a $48 per share liquidating dividend, and the
company will cease operations. If the discount rate is 9 percent, what is the current value of the
company’s stock?
Solution
Year Cash Inflow Pv 9% Present Value 1 1.5 0.9174 1.38 2 1.5 0.8417 1.26 3 1.5 0.7722
1.16 4 49.5 0.7084 35.07 Value of share 38.86