ZuoTi.Pro
Question

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

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 $7.35 per share dividend 10 years from today and will increase the dividend by 3.12 percent per year thereafter. If the required return on this stock is 7.19 percent, what is the current share price?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

rate positively

First we have to compute the price of the bond at the end of 10th year.
then we have to compute the present value of 10th year price to get stock price.
Price of stock at the end of 10th year = 11th year dividend/(required rate - growth rate)
7.35*103.12%/(7.19%-3.12%)
    186.22
Therefore price at the end of 10th year =     186.22
Dividend received on 10th year = 7.35
Total cash flow at 10th year =     193.57
Price today = Present value of cash flow on 10th year
193.57/(1.0719)^10
      96.67
Ans = $   96.67
1 0
Add a comment
Know the answer?
Add Answer to:
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    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 $12 per share 10 years from today and will increase the dividend by 4 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...

    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 $14 per share dividend 10 years from today and will increase the dividend by 8 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price?

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    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 in 10 years 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?

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 8 years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $12 per share 9 years from today and will increase the dividend by 6 percent per year thereafter.    If the required return on this stock is 13 percent, what is the current share price?

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 14 years because the firm needs to plow back its earnings to fuel growth. The company will pay a dividend of $13 per share 15 years from today and will increase the dividend by 8 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    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 5 percent per year thereafter. If the required return on this stock is 14.5 percent, what is the current share price? (Do not round intermediate calculations and...

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    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 $14 per share dividend 10 years from today and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 14 percent, what is the current share price? (Do not round intermediate calculations and round...

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    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 $17 per share 10 years from today and will increase the dividend by 3.9 percent per year thereafter. If the required return on this stock is 12.5 percent, what is the current share price? (Do not round intermediate calculations and...

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

    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 $14 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?

  • Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock...

    Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next four years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $12 per share 5 years from today and will increase the dividend by 5 percent per year thereafter.  Required: If the required return on this stock is 12 percent, what is the current share price?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT