Problem:
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $18 per share dividend in 10 years and will increase the dividend by 6 percent per year thereafter.
Required:
Question: If the required return on this stock is 13 percent, what is the current share price?
Note: Provide support for your underlying principle.