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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 7 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $2.65 per share dividend in 8 years and will increase the dividend by 0.07 per year thereafter. If the required return on this stock is 0.09, what is the current share price? Answer with 2 decimals (e.g. 45.45).

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Answer #1

Based on the formula,

Now, we need to discount this to calculate the current price.

$132.50 = P0 * (1 + 9%)6

$132.50 = P0 * 1.6771

P0 = $79.01

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