Metallica Bearings, Inc., is a young start-up company. No dividends will be paid
ID: 2698064 • Letter: M
Question
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 $15 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 12 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 $15 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 12 percent, what is the current share price?
Explanation / Answer
Hi,
Please find the answer as follows;
PO = 15/(.12 -.06)*(1+.12)^9 = 90.15
Current Stock Price = 90.15
Thanks.