Question

The net income of Progressive Corporation is $165,000. The company has 35,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $2.1 million. The appropriate discount rate for the company is 12 percent, and the dividend tax rate is zero.

a. $1.65 per share
b. $2.10 per share
c. $3.00 per share
d. $6.00 per share

Answer 1

To calculate the price per share, divide the present value of the firm one year from now by the number of outstanding shares.

Step-by-step explanation:

To calculate the price per share, we need to find the present value of the expected value of the firm one year from now and divide it by the number of outstanding shares.

First, we calculate the present value of the firm using the appropriate discount rate. The present value is calculated as: $2.1 million / (1 + 0.12) = $1.875 million.

Next, we divide the present value of the firm by the number of outstanding shares to find the price per share: $1.875 million / 35,000 shares = $53.57 per share.

Therefore, the correct answer is: a. $1.65 per share.