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Metallica Bearings, Inc
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 11 years because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $13.75 per share 12 years from today and will increase the dividend by 5.5 percent per year thereafter. The required return on the stock is 13.5 percent.
What is the price of the stock 11 years from today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
rPrice in 11 years
Expert Solution
Computation of Price in 11 Years:
Price in 11 years = Expected Dividend in Year 12 / (Required return - Growth rate)
= $13.75/(13.5%-5.5%)
= $171.88
So, Price in 11 Years is $171.88
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