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How much total dividends per share will stockholders receive

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Reference no: EM132492963

A company is considering the following two dividend policies for the next five years.

YearPolicy #1

Year 1: $4.00

Year 2: $4.00

Year 3: $4.00

Year 4: $4.00

Year 5: $4.00

Policy #2

Year 1: $6.00

Year 2: $2.70

Year 3: $5.00

Year 4: $3.10

Year 5: $3.20

Question 1: How much total dividends per share will the stockholders receive over the five year period under each policy?

Question 2: If investors see no difference in risk between the two policies, and therefore apply a 9.4% discount rate to both, what is the present value of each dividend stream?

Question 3: Suppose investors see Policy #2 as the riskier of the two. And they therefore apply a 9.4% discount rate to Policy #1 but a 14% discount rate to Policy #2. Under this scenario, what is the present value of each dividend stream?

Reference no: EM132492963

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