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Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over

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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, because the firm needs to plow back its earnings to fuel growth. The company will then pay a $12 per share dividend in year 10 and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?

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...
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Here we have a stock that pays no dividends for nine years Once the stock begins paying ...View the full answer


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Related Book For  answer-question
Essentials Of Corporate Finance

Essentials Of Corporate Finance

ISBN: 9780073382463

7th Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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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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