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

---

Definitions:

Discount Sources

Refers to methods or approaches utilized to obtain discounts or reduce costs on purchases and services.

Cost Function

A mathematical formula that describes how production costs change at different output levels.

Used-Car Dealer

A business that specializes in selling pre-owned vehicles, often with various financing options.

Stackelberg Leader

A firm that has a dominant position in a market or industry, dictating terms and strategies that other firms, or followers, adapt to.