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, becau

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Answer 1

Answer #1

Share price in year 9 = Expected dividend/ (Rate of return - Growth rate)

= $ 13.25/ (0.13 – 0.05)

= $ 13.25/0.08

= $ 165.625

Current share price = Share price in year 9/ (1+ Rate of return)⁹

= $ 165.625/ (1+0.13)⁹

= $ 165.625/ (1.13)⁹

= $ 165.625/3.00404193798427

= $ 55.1340505289802 or $ 55.13

Current share price is $ 55.13

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Answer 2

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