A financial analyst expects KadeCo to pay a dividend of S3 pet share one year from today, a dividend of 53.50 per share in years two, and estimates the value of the stock at the end of year two to be 528. If your required return on KadeCo stock is 15%, what is the most you would be willing to pay for the stock today if you plan to sell the stock in two years? a $26.09 b. $26.43c 528 90 d $34.00

The most you would be willing to pay for the stock today is the present value of all the expected cash flows during your investment period. As your required rate of return is 15%, therefore the cash flows will be discounted at 15% for present value calculation

The present value of all the expected cash flows = Expected Dividend in one year / (1+15%) ^1 + Expected Dividend in two years / (1+15%) ^2 + Expected price of stock at end of year 2 / (1+15%) ^2

= $3/ (1+15%) ^1 + $3.50/ (1+15%) ^2 + $28/ (1+15%) ^2

= $2.61 + $2.65 + $21.17

= $26.43

The most you would be willing to pay for the stock today is $26.43

Therefore, correct answer is option b. $26.43