In: Finance

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 10 years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $10 per share 11 years from today and will increase the dividend by 7 percent per year thereafter. |

If the required return on this stock is 14 percent, what is the current share price? |

Lohn Corporation is expected to pay the following dividends over the next four years: $10, $7, $6, and $2. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. |

If the required return on the stock is 12 percent, what is the current share price? |

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 23 percent for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter. |

If the required return is 11 percent and the company just paid a $1.30 dividend. what is the current share price? |

Let the dividend for year n be denoted by Dn

Let required rate of return be r

Let Growth rate be g

(1) Given, D11 = 10, g = 7% and r = 14%

According to Gordon's Growth Formula,

P10 = D11/(r - g) = 10/(0.14 - 0.07) = $142.86

Hence, P0 = P10/(1+r)^{10} =
142.86/(1+0.14)^{10} = $38.54

Hence, Price of stock now = $38.54

(2) Given, D1 = 10, D2 = 7, D3 = 6, D4 = 2, g = 6%, r = 12%

According to Gordon's Growth Formula, P3 = D4/(r - g) = 2/(0.12 - 0.06) = $33.33

Hence, Price of stock now = D1/(1+r) + D2/(1+r)^{2} +
D3/(1+r)^{3} + P3/(1+r)^{3} = 10/(1+0.12) +
7/(1+0.12)^{2} + 6/(1+0.12)^{3} +
33.33/(1+0.12)^{3} = $42.50

(3) Given, D0 = $1.30, g1 = 23%, r = 11% and g2 = 6%

D1 = D0(1+g1) = 1.30(1+0.23) = $1.599

D2 = D1(1+g1) = 1.599(1+0.23) = $1.967

D3 = D2(1+g1) = 1.967(1+0.23) = $2.419

D4 = D3(1+g2) = 2.419(1+0.06) = $2.564

According to Gordon's Growth Formula, P3 = D4/(r - g) = 2.564/(0.11 - 0.06) = $51.28

Hence, Price of stock now = D1/(1+r) + D2/(1+r)^{2} +
D3/(1+r)^{3} + P3/(1+r)^{3} = 1.599/(1+0.11) +
1.967/(1+0.11)^{2} + 2.419/(1+0.11)^{3} +
51.28/(1+0.11)^{3} = $42.30

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 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 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 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 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 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 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 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 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 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?

ADVERTISEMENT

ADVERTISEMENT

Latest Questions

- Intermediate Accounting II On January 1, 2018, Duncan-Lang Services, Inc. a computer software training firm, leased...
- 3. (a) Define the current ratio and return on assets ratio. (b) State what financial management...
- why is proline isomerization often a rate limit step in protein folding? Explain
- Assume you are in main.cpp define a function that is NOT SCOPED to any class. It...
- Examine the challenge of determining an ethical issue in business. (The response should be 350 to...
- A current filament carrying 8A in the z a direction lies along the entire z-axis in...
- 1. Compare the Unix directory and the windows directory and answer the following: a. Match 3...

ADVERTISEMENT