Answer:
There's an error in the numbers for this question; I found the correct one and pasted it below;
"Great Lakes Steel Supply is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $1.30 per share but all future dividends will be decreased by 2.75 percent annually. What is a share of this stock worth today at a required return of 15.5 percent? "
Explanation:
Use dividend discount model (DDM) to calculate the stock price
[tex]P0 = \frac{D0(1+g)}{r-g}[/tex]
whereby,
P0 = Current price
D0 = Last dividend paid = 130
g = growth rate = -275% or -2.75 as a decimal
r = required return = 155% or 1.55 as a decimal
Next, plug in the numbers to the DDM formula above;
[tex]P0 = \frac{1.30(1-0.0275)}{0.155 + 0.0275} \\ \\ = \frac{1.2643}{0.1825} \\ \\ =6.9277[/tex]
Therefore this stock is worth $6.93
