Steel Safety Corporation is in the introductory stage of the industry life cycle, so its sales and

Question:

Steel Safety is in the introductory stage of the industry life cycle, so its sales and earnings have grown rapidly in recent years. To date, the company has chosen to retain all of its earnings rather than pay dividends. Analysts have projected that Steel Safety will continue to retain all of its earnings for another 10 years. Eleven years from today, the company is expected to pay its first which is predicted to be $25 per share. Analysts have also determined that the appropriate required rate of return on Steel Safety’s stock is 16 percent.
a. Compute the value of the stock today assuming that once the payments start the dollar amount will remain constant at $25 per share per year.
b. Assuming the will grow at a constant rate of 6 percent per year once the payments begin, what is the value of the stock today?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...