Metallica Bearings Inc., is a young start up company No dividends will be paid o
ID: 2763851 • Letter: M
Question
Metallica Bearings Inc., is a young start up company No dividends will be paid on the stock over the next seven years, because the firm needs to flow back its earnings to fuel growth The company will then pay a dividend of $15 50 per share 8 years from today and will increase the dividend by 6.00 present per year thereafter. If the required return on this stock is 14 00 present, what is the current share price? (Do not round intermediate calculations Round your answer to 2 decimal places (e.g., 32.16).)Explanation / Answer
Dividend paid in year 8 $ 15.50 Growth rate 8.00% Required rate of return 14.00% Price of the stock at the end of year 7 = D8 / (r-g) $ 258.33 On discounting the price at the end of 7 years to present value by using the formula as : P7 / (1+r)^7 $ 103.24