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

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

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Answer 1

Answer #1

Stock price in 9 Years

Here, we know the annual dividend payment in Year 10, So we can calculate the Price of share in Year 9 which is calculated as follows

Price of share in Year 9 = D10 / (Ke – g)

= $14.00 / (0.1250 – 0.0390)

= $14.00 / 0.0860

= $162.79

Stock price today

The Price of the stock today will be the present value of stock price in the Future Year

Therefore, Stock Price Today = Future Stock Price / (1 + r)ⁿ

= $162.79 / (1 + 0.1250)⁹

= $162.79 / 2.886507578

= $56.40

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Answer 2

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