Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

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 pay a $840 per share dividend in 10 years and will increase the dividend by 6 percent per year, thereafter. If the required return on this stock is 13 percent, what is the current share price?

Expert Solution

Value after year 10=(D10*Growth rate)/(Required return-Growth rate)

=(840*1.06)/(0.13-0.06)

=12720

Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)

=840/1.13^10+12720/1.13^10

=$3994.62(Approx)

jeff jeffy answered 2 years ago

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

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 pay a dividend of $12 per share in 10 years and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 11 percent, what is the current share price?

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Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

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Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

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