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Metallica Bearings, Incorporated, 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
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29 votes
29 votes
Metallica Bearings, Incorporated, 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 3.9 percent per year thereafter. If the required return on this stock is 11.5 percent, what is the current share price

User Luck
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1 Answer

21 votes
21 votes

Answer:

$69.08

Step-by-step explanation:

Calculation to determine the current share price?

First step is to determine the price of the stock in year 9

P9=$14/(.115− .039)

P9=$14/0.076

P9=$184

Now let determine the Current price

P0=184.00/(1+.115)^9

P0=184.00/1.115^9

P0=184.00/2.6636

P0=$69.08

Therefore the current price is $69.08

User Culture
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