Answer :
The value of the stock given the cash flows and the required return is $71.43.
What is the value of the stock?
In order to determine the value of the stock, determine the present value of the cash flows from the stock. The cash flows are the dividend payments in year one and 2 and the price target at the end of year 2.
Present value is the sum of the discounted cash flows expected from a project.
Present value = 2.25 / 1.122 + 2.40 / 1.122² + 85 / 1.122² = $71.43
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