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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
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13 votes
13 votes
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 6 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price

User Jignesh Kheni
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1 Answer

20 votes
20 votes

Answer:

$90.15

Step-by-step explanation:

Calculation to determine the current share price

Current share price=$15/(.12− .06)/(1+0.12)^9

Current share price=$250/1.12^9

Current share price=$90.15

Therefore The current share price will be $90.15

User Hawks
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2.7k points
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