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Nonconstant Growth
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eight years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $16.50 per share 9 years from today and will increase the dividend by 5.75 percent per year thereafter.
Required:
If the required return on this stock is 13.75 percent, what is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Calculate the net present value (NPV) for a 25-year project with an initial investment of $20,000 and a cash inflow of $2,000 per year. Assume that the firm has an opportunity cost of 16%. Comment on the acceptability of the project.
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