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Chrome File Edit View History Bookmarks People Window Help * 82% O Mon 8:31 PM Hassan Alsaihati Q O E 00. Assignment 10 - GRADED X Hassan + C 0 ezto.mheducation.com/hm.tpx * ®O Apps Duwm Rhotmail A ALEKS M Mathway A PEX Expedia & CR O EagleRider Rentals 9 AT&T; Pay Online Fat + VIP O D WileyPLUS O juinO ayi » E connect Principles of Finance 350: Fall 2017-001 HASSAN ALSAIHATI Assignment 10 - GRADED instructions I help Question 5 (of 7) O Save & Exit submit 5. value: 1.00 points * You did not receive full credit for this question in a previous attempt Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next ten years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $14.75 per share 11 years from today and will increase the dividend by 5.25 percent per year thereafter. If the required return on this stock is 13.25 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price $ eBook & Resources eBook: 7.1 Common Stock Valuation Check my work Previous attempt c2017 McGraw-HI Education. All rights reserved. 90 99 OL 6 IL 15 O 6 WE PE XIO O AOO AO

Explanation / Answer

D11 = 14.75

According to dividend-discount model,

P0 = D1/(R-G)

P0 = Current stock price

D1 - Dividend at t =1

R - Required rate

G - Growth rate

P10 = D11/(R-g) = 14.75/(0.1325-0.0525) = 184.375

To find P0, discount P10

P0 = 184.375/(1+0.1325)^10 = $53.13

Current share price = $53.13

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