Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.90, $16.90,...

Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.90, $16.90, $21.90, and $3.70. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends, forever.

If the required return on the stock is 10 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current share price $

Expert Solution

Present Value of Dividend = $ 38.311522436992

Year	Dividend	Discounting Factor (10%)	Present Value ( Dividend * Discounting factor)

1	5.90	0.9090909090909090	5.3636363636363600
2	16.90	0.8264462809917350	13.9669421487603000
3	21.90	0.7513148009015780	16.4537941397446000
4	3.70	0.6830134553650710	2.5271497848507600





Present Value of Dividends			38.311522436992000

Price at Year 4 = Expected Dividend / (Required return - growth rate)

= [( 3.70 * 106%) / ( 10%-6%) ] / ( 10% -6%)

= $ 3.922 / 4%

= $ 98.05

Present Value of Price at Year 4 = Price at Year 4 * Discounting Factor ( 10%, 4)

= $ 98.05 * 0.6830134553650710

= $ 66.9694692985452

Current Price = Present Value of Price at Year 4 + Present Value of Dividend

= $ 66.9694692985452 + $ 38.311522436992

= $ 105.28

Hence the correct answer is $ 105.28

jeff jeffy answered 7 hours ago

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