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Chrome File Edit View History Bookmarks People Window Help 79% T), "1 Mon 8:49 PM Hassan Alsaihati e) E . / D Assignment 10-GRADED You're Trying To Determine W Hassan × × ezto.mheducation.com/hm.tpx :: Apps UWM-, hotmail A ALEKS Mathway PEX Expedia-CR EagleRider Rentals AT&T; > Pay Onlir at ·VIP () DWileyPLUS OjuJ Principles of Finance 350: Fall 2017-001 HASSAN ALSAIHATI FINANCE Assignment 10 - GRADED instructions I help Question 5 (of 7) Save & Exit Submit 5.100 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

Explanation / Answer

Value as on year 11=(Dividend for year 11*Growth rate)/(required return-growth rate)

=(14.75*1.0525)/(0.1325-0.0525)=$194.0546875

Hence current price=Future dividends*Present value of discounting factor(13.25%,time period)

=14.75/1.1325^11+194.0546875/1.1325^11

=$53.13(Approx).

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