2. value: 7.00 points Metallica Bearings, Inc., is a young start-up company. No

Question

2. value: 7.00 points Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $15.75 per share 10 years from today and will increase the dividend by 5 percent per year thereafter. The required return on the stock is 13 percent. Required: What is the price of the stock 9 years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Price in 9 years What is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current share price References eBook&Resources; Worksheet Difficulty: Intermediate Learning Objective: 07-01 Assess how stock prices depend on future dividends and dividend growth. Check my work

Explanation / Answer

Thus,

D10= Dividend at the end of 10th Year

Ke= Return on Stock

g= Growth rate in dividend

Price of stock 9 Years from today = D10/Ke-g = 15.75/.13-.05 = 196.88 Current Price Price at the end of 9th year = 196.88 Discounting factor for 9th Year on 13% return on Stock = 0.33 Present Value of Stock = 65.54

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

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