3. Metallica Bearings, Inc., is a young start-up company. No dividends will be p

Question

3. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eight years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $12.75 per share 9 years from today and will increase the dividend by 5.75 percent per year thereafter.

If the required return on this stock is 13.75 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If the required return on this stock is 13.75 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Current share price= (12.75/1.1375^9)+[(12.75x1.0575)/(.1375-.0575)1.1375^9]= $56.86

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.