Amiga Corporation has just paid an annual dividend of $1.24. Analysts are predicting a 11.9% per year growth rate in earnings over the next 4 years. After that, Amiga's earnings are expected to grow at the current industry average of 4.9% per year. Assume that Amiga's cost of equity capital is 8.9% per year and that its dividend payout ratio will remain constant for the foreseeable future. What price does the dividend-discount model predict Amiga shares should currently sell for? The value of Amiga Corporation's shares is $83.16 (Round your answer to the nearest cent) Your last answer was interpreted as follows: 83.16 Incorrect answer. You need to follow the steps below to determine the value of an Amiga share: First, you need to apply the growing annuity formula to find the value of the first 4 dividend payments at t = 0: PV1-4-growing annuity = [D1/(re-91)] * [1 - [(1 + 91)/(1 + rej14] where D1 = Do*(1 +91) Do = $1.24 91 = 11.9% re = 8.9% Next, you apply a growing perpetuity formula to determine the value on year 4 of the rest of the dividend payments: PV4 = D5 / (re-g2) where D5 = Do*(1 + 91)4*(1 + g2) Do = $1.24 91 = 11.9% 92 = 4.9% re = 8.9% Then, you discount the above value to the present (t = 0) using this formula: PV5-ce-growing perpetuity = PV4/ (1 + re) where re = 8.9% Finally, you can get the value of an Amiga share by using the following formula: Po = PV 1-4-growing annuity + PV5.co-growing perpetuity