Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on thestock over the next 10 years because the firm needs to plow back its earnings to fuelgrowth. The company will then pay a dividend of $14.75 per share 11 years fromtoday and will increase the dividend by 5.25 percent per year thereafter. The requiredreturn on the stock is 13.25 percent.What is the price of the stock 10 years from today? (Do not round Intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)Price in 10 yearsWhat is the current share price? (Do not round Intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)Current share price

a) Calculation of bond price in year 10 Stock price=D11/r−g=14.75/0.1325−0.0525=184.375 Therefore,…

Answered: Metallica Bearings, Inc., is a young…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 25P

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