Sinclair Pharmaceuticals, a small drug company, hasdeveloped a vaccine that will protect againstHelicobacter pylori, a bacterium that is the cause of anumber of diseases of the stomach. It is expected thatSinclair Pharmaceuticals will experience extremely highgrowth over the next three years & will reinvest all of itsearnings in expanding the company over this time.Earnings were $1.65 per share before the development ofthe vaccine (in year 0) & are expected to grow by 40%per year for the next three years. After this time, it isexpected that growth will drop to 6% & stay there for theexpected future. Four years from now Sinclair will beginpaying dividends that are equal to 75% of its earnings. Ifits equity cost of capital is 12%, what is the value of ashare of Sinclair Pharmaceuticals today?

1. **Earnings Growth Projection**: - The problem states that earnings per share (EPS) were $1.65…

Answered: Sinclair Pharmaceuticals, a small drug…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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