Zephyr Inc. sells wind based systems for generating electricity. The company pays no dividends, but you estimate the stock will be worth $50 per share 5 years from now and you require a 15% rate of return for stock investments of this type. What price should you be willing to pay for this stock?

Question

Business

Hugo Lambert

15 March, 12:12

Zephyr Inc. sells wind based systems for generating electricity. The company pays no dividends, but you estimate the stock will be worth $50 per share 5 years from now and you require a 15% rate of return for stock investments of this type. What price should you be willing to pay for this stock?

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Answers (1)

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Isabela Conrad · Answer 1

The price you should be willing to pay for this stock = $24.86

Explanation:

To estimate the stock will be worth $50 per share 5 years from now and you require a 15% rate of return for stock investments of this type. Therefore 50 = xX1.15^5 by solving this equation we have x = 24.86. The price you should be willing to pay for this stock = $24.86