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

question 50

Multiple Choice

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?}

• A)$33.33
• B)$38.96
• C)$48.30
• D)$52.00
• E)$54.45

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Definitions:

Resistance

The opposition that a substance offers to the flow of electric current, measured in ohms (Ω).

Capacitance

The ability of a system to store an electric charge, measured in farads, represented by the ratio of the change in electric charge to the change in electric potential.

Watts

The measure of power within the International System of Units (SI), defined as one joule per second.

RC Parallel Circuit

An electric circuit in which a resistor and a capacitor are connected parallelly, affecting the impedance and the phase of the voltage and current.