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Leona [35]
3 years ago
11

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because t

he 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 5 percent per year thereafter.
If the required return on this stock is 15 percent, what is the current share price?
Business
1 answer:
dimulka [17.4K]3 years ago
8 0

Answer:

$51.25

Explanation:

P9 = Next dividend / Required rate r - Growth rate g

P9 = $15 / 14% - 5%

P9 = $15 / 9%

P9 = $166.67

Po = P9 / (1 - Required rate of return)^9

Po = $166.67 / (1 + 0.14)^9

Po = $166.67 / 3.2519

Po = $51.25

So, the current stock price is $51.25.

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7 0
3 years ago
When the risks of the individual components of a project’s cash flows are different, an acceptable procedure to evaluate these c
maxonik [38]
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3 0
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Your project sponsor has asked you to explain the negative or threat risk response strategies and the opportunity or positive ri
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