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Question - You own 1000 shares of stock in Avondale Corp. You will receive a dividend of $2 per share in one year. In two years, Avondale will pay a liquidating dividend of $40 per share. The required rate of return on Avondale stock is 10%. Ignore taxes.
(i) What are Avondale's (a) current stock price (b) stock price in 1 year (after the $2/share dividend payment)?
(ii) If you prefer receive a dividend of $5 per share in one year, (a) How can you achieve your desirable income using homemade dividends? Show the steps and relevant numbers. (b) As a result, what would be your total income in year 2?
(iii) If you prefer to receive roughly equal dividends (i.e. equal cash income) in each of the next two years, show that you can accomplish this by creating homemade dividends. Provide the details of your homemade dividends strategy and the resulting cash flows in each of the two years. Hint: stock price does not change with homemade dividends.
Melissa's adjusted basis in her Statesboro Partnership interest was $32,000 when she received a nonliquidating distribution of $13,000 cash and a property with an AB to Statesboro of $25,000 and a FMV of $28,000. Lucy has a $50,000 basis in the Diamo..
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