Question

Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $0.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 21% per year - during Years 4 and 5, but after Year 5, growth should be a constant 9% per year. If the required return on Computech is 13%,

what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.

I don't know why you couldn't answer my question! I hope you removed this question form my list because i don't get the answer.is 11.9

Answer 1

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Answer:

D3=0.50

D4=(0.50*1.21)=0.605

D5=(0.605*1.21)=0.73205

Value after year 5=(D5*Growth rate)/(Required rate-Growth rate)

=(0.73205*1.9)/(0.13-0.09)

=34.772375

Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)

=0.5/1.13^3+0.605/1.13^4+0.73205/1.13^5+34.772375/1.13^5

=$19.988 ~ 19.99 (Approx).