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 $20 per share 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 10 percent, what is the current share price?

Expert Solution

	Required rate=	10.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	0		0	1.1	0
2	0	0.00%	0		0	1.21	0
3	0	0.00%	0		0	1.331	0
4	0	0.00%	0		0	1.4641	0
5	0	0.00%	0		0	1.61051	0
6	0	0.00%	0		0	1.771561	0
7	0	0.00%	0		0	1.9487171	0
8	0	0.00%	0		0	2.14358881	0
9	0	0.00%	0		0	2.357947691	0
10	0	0.00%	20	346.667	366.667	2.59374246	141.366
	Long term growth rate (given)=	4.00%			Value of Stock =	Sum of discounted value =	141.37

Where
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 10 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

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?

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 $10 per share exactly 10 years from today and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 10 percent, what is the current share price? (Do not round intermediate calculations...

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 $12 per share dividend 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

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 $15 per share 10 years from today and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 10.5 percent, what is the current share price?

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 $11 per share in 10 years and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price? (Do not round intermediate calculations and round...

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?

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 $14 per share 10 years from today and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price? (Do not round intermediate calculations and...

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 $10 per share dividend 10 years from today and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 11.5 percent, what is the current share price? (Do not round intermediate calculations and round...

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 $3.74 per share dividend 10 years from today and will increase the dividend by 4.55 percent per year thereafter. If the required return on this stock is 8.38 percent, what is the current share price?

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 $10 per share exactly 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12.5 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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