Regulatory approval of the product

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Xylitor is a relatively new biotech firm, with an exciting new product that is anticipated to come to market in approximately 2 years (following regulatory approval of the product, which is Xylitor's first).

A share of Xylitor is trading at $25. Xylitor has not paid a dividend yet, but anticipates initiating a dividend in 3 years (again, after approval of the product). The required return on Xylitor is 12% per year.

Assuming the project/company is considered to be a perpetuity, if earnings per share for the new product (after approval) are anticipated to be $5.00 per share, and the dividend payout will be 100% of earnings (i.e. the % earnings paid out as dividends is 100%), what is your best estimate about the market's probability of product approval?

Reference no: EM132664448

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