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Ten years ago, Pac Pac Toys began manufacturing and selling retro arcade games for sports bars....

Ten years ago, Pac Pac Toys began manufacturing and selling retro arcade games for sports bars. Dividends are currently $2.57 per share, having grown at a 14.00 percent compound annual rate over the past 5 years. That growth rate is expected to be maintained for the next 2 years, after which dividends are expected to grow at half that rate for 3 years. Beyond that time, Pac Pac Toys’s dividends are expected to grow at 4.00 percent per year. What is the current value of a share of Pac Pac Toys common stock if your required return is 25.00 percent?

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Expert Solution

* Horizon value = Dividend in year 5 * (1 + Constant Growth Rate) / (Required rate - Growth rate)

jeff jeffy answered 2 years ago
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