King Schultz Dentures, Inc., is a young start-up company. No dividends will be p

Question

King Schultz Dentures, 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 $15 per share dividend in 10 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 10.5 percent, what is the current share price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Please help and show work if possible.

King Schultz Dentures, 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 $15 per share dividend in 10 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 10.5 percent, what is the current share price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the answer as follows:

Current Price of the Stock = 15/(1+.105)^10 + 15*(1+.05)/(.105 - .05)*(1+.105)^10 = 111.04

Answer is 111.04

Thanks.

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