Residual Income Valuation of XYZ Corp

Consider a company, XYZ Corp, that has projected earnings of $500,000 for the upcoming year. The required rate of return for equity investors is 10%. XYZ Corp has total equity of $2,000,000 and pays no dividends. The company projects that it will grow its earnings at a rate of 5% per year indefinitely. Using the Residual Income Valuation method, which considers the equity charge, how much should an investor be willing to pay for one share of XYZ Corp if there are 100,000 shares outstanding?