Metallica Bearings Inc. is a young start-up company. No dividends will be paid on the stock over
Question:
Metallica Bearings Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will pay a $9 per share dividend in 10 years and will increase the dividend by 5.5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?
Step by Step Answer:
Here we have a stock that pays no dividends for 9 years Once the stock begins paying ...View the full answer
Corporate Finance
ISBN: 9781259270116
8th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Roberts, Hamdi Driss
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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