**PLEASE SHOW THE STEPS*** Titanium World Inc., which is a firm that makes speci

Question

**PLEASE SHOW THE STEPS***

Titanium World Inc., which is a firm that makes specialized golf clubs, plans to pay a dividend of $2 per share at the end of this year; the following year's dividend is expected to be $3 per share; the dividend the year after is expected to be $5; and, after that point, dividends should increase at a constant rate of 10 percent each year forever. The appropriate discount rate for Titanium World is 15 percent. What is the per share value of Titanium World's stock?



a. $79.62

b. $110.00

c. $80.72

d. $62.89

e. $70.19

Explanation / Answer

According to the given information, Dividend in year-1 = $2 per share Dividend in year-2 = $3 per share Dividend in year-3 = $5 per share Constant growth rate = 10% Required rate of return = 15% Calculating the current price of the stock: First we have to calculate the price of the stock in year-3: P3 = D4 / (R - g)      = D3 (1+g) / (R-g)      = $5 (1+0.10) / (0.15 - 0.10)      = $5.5 / 0.05      = $110 Therefore, the price of the stock is $110 The correct option is b) $110

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