A young start-up company will not pay dividends on its stock over the next 9 years. The company will pay a dividend of $9 per share 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required rate of return is 12 percent, what is the current share price?Please use a HP 10bii+ Financial Calculator

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Asked Nov 24, 2019
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  1. A young start-up company will not pay dividends on its stock over the next 9 years. The company will pay a dividend of $9 per share 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required rate of return is 12 percent, what is the current share price?

Please use a HP 10bii+ Financial Calculator

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Expert Answer

Step 1

Hence, value of share at year 10 beginning is $112.5 which is determined by dividing t...

Dividend at year 10
Value of Share at beginning of 10th year
Rate of return Growth rate
$9
0.12-0.04
=$112.5
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Dividend at year 10 Value of Share at beginning of 10th year Rate of return Growth rate $9 0.12-0.04 =$112.5

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