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Sinclair Pharmaceuticals,a Small Drug Company,develops a Vaccine That Will Protect

question 29

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Sinclair Pharmaceuticals,a small drug company,develops a vaccine that will protect against Helicobacter pylori,a bacteria that is the cause of a number of diseases of the stomach.It is expected that Sinclair Pharmaceuticals will experience extremely high growth over the next three years and will reinvest all of its earnings in expanding the company over this time.Earnings were $1.20 per share before the development of the vaccine and are expected to grow by 40% per year for the next three years.After this time,it is expected growth will drop to 5% and stay there for the expected future.Four years from now Sinclair will pay dividends that are 75% of its earnings.If its equity cost of capital is 10%,what is the value of a share of Sinclair Pharmaceuticals today?

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Definitions:

Stepwise Regression

A method of regression analysis that involves adding or removing predictors based on their statistical significance in a step-by-step manner to identify a model with optimal predictors.

P-values

A measure in statistical hypothesis tests representing the probability of observing the given or more extreme results assuming the null hypothesis is true.

Stepwise Regression

Stepwise regression is a statistical method of building predictive models by sequentially adding or removing variables based solely on their statistical significance.

Multiple Regression

A procedure within statistics for modeling how various independent variables impact a single dependent variable.

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