Final answer:
The current share price of Apocalyptica Corp. can be calculated using the dividend discount model (DDM) and the present value of future dividends. First, the present value of the constant dividend is calculated using the required return of 15 percent. Then, the present value of the perpetual dividend is calculated as zero since the dividend ceases after 6 years. Finally, the two present values are added to determine the current share price.
Step-by-step explanation:
The current share price can be determined using the dividend discount model (DDM). DDM calculates the present value of future dividends to estimate the stock price. In this case, since Apocalyptica Corp. pays a constant $2.77 dividend for 6 years and then stops, we need to calculate the present value of those dividends using a required return of 15 percent.
First, we calculate the present value of the constant dividend using the formula:
PV = D / (1 + r)ⁿ
Where PV is the present value, D is the annual dividend, r is the required return, and n is the number of years.
In this case, the present value of the dividend is calculated as:
PV = $2.77 / (1 + 0.15)⁶ = $1.0647
Next, we calculate the present value of the perpetual dividend using the formula for perpetuity:
PV = D / r
Since the dividend is zero after 6 years, the present value of the perpetual dividend is zero.
Finally, we add the present value of the constant dividend and the present value of the perpetual dividend to get the current share price:
Current Share Price = $1.0647 + 0 = $1.0647