Metallica Bearings, Inc., is a young start-up company. No dividends will be paid
ID: 2778667 • Letter: M
Question
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eight years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $16.50 per share 9 years from today and will increase the dividend by 5.75 percent per year thereafter. Required: If the required return on this stock is 13.75 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Condition: No dividends will be paid on the stock over the next eight years.
Dividend will pay on 9th Year = $ 16.50 per share = 13.75%