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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 14 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $8 per share dividend in 15 years and will increase the dividend by 7 percent per year thereafter. If the required return on this stock is 11 percent, what is the current share price?

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Answer #1

Based on time value of money,

FV = PV * (1 + r)n

200 = P0 * (1 + 11%)14

200 = P0 * 4.3104

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