Ten years ago, Pac Pac Toys began manufacturing and seling retro arcade games for sports bars. Dlvidends are currently $2.07 per share, having grown at a 12.00 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 5.00 percent per year. What is the current value of a share of Pac Pac Toys common stock if your required return is 10.00 percent? Answer format: Currency: Round to: 2 decimal places. Ten years ago, Pac Pac Toys began manufacturing and selling retro arcade games for sports bars. Dividends are currently $2.00 per share, baving grown at a 10 percent coenound anhual fate over the past 5 years. That growth rate is expected to be maintained for the exext 2 yeark, 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 3 percent per year. What is the current value of a share of Pac Pac Toys comanon stock if your reculred retura is 18 percent? SOLUTION: First step: Find the value of all phase 1 dividends. (g=10% for years 12,g=5% for years 3,4, and 5 ) D1=D0r(1+g)=$21.10=$2.20D2=D1(1+g)=$2.201.10=$2.42D1=D2(1+g)=$2.421.05=$2.54D4=D2(1+)=$2.541.05=$2.67D5=D4(1+g)=$2.671.05=$2.80P0=(1.10)3$2.20+(1.18)3$2.42+(1.18)3$2.54+(1.18)6$2.67+(1.18)5$2.80 Solving with FISANCIAL CALCULATOR. NPV =PV of dividends =57.75 We know the dividend at year 5 is 52.00 . We will use bis dividend to base our constant growth model. The infinite model worka wherever constant growth starts to our model becomes: PN=rDN+1=r=DNx(1+a) So our model cives us the selling price of the atock at time N. Applying to bur problem: =10.0352.00(1.03)=512.23 This is the selling price of the stexk in FIVE years. We stall need te discesnt bis back to ToDAY. =(1+r)4b5=(1.16)51923=38.46 To finish the problem, we seed to add the PV of Phase I to the PV er phase II. R.=5775+58.40=516.15