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 $0.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 27% per year - during Years 4 and 5; but after Year 5, growth should be a constant 9% per year. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

If the required return on Computech is 15%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

Answer #1

**Stock price today = $12.56**

Horizon Value = year 5 dividend * (1 + constant Growth) / (required rate - Growth Rate)

Horizon Value = 1.21 * (1.09) / 15%-9%

**Horizon Value = $21.98**

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 $0.75 coming 3 years from today. The
dividend should grow rapidly - at a rate of 42% per year - during
Years 4 and 5; but after Year 5, growth should be a constant 7% per
year. The data has been collected in the Microsoft Excel Online...

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 $1.25 coming 3 years from today. The
dividend should grow rapidly - at a rate of 40% per year - during
Years 4 and 5; but after Year 5, growth should be a constant 10%
per year. The data has been collected in the Microsoft Excel Online...

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 $1.75 coming 3 years from today. The
dividend should grow rapidly - at a rate of 47% per year - during
Years 4 and 5; but after Year 5, growth should be a constant 8% per
year.
Open spreadsheet If the required return on Computech is 13%,...

xcel Online Structured Activity: Nonconstant growth
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 $0.75 coming 3 years from today. The
dividend should grow rapidly - at a rate of 37% per year - during
Years 4 and 5; but after Year 5, growth should be a constant 8% per
year. The data has been...

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 $0.75 coming 3 years from today. The
dividend should grow rapidly - at a rate of 45% per year - during
Years 4 and 5, but after Year 5, growth should be a constant 8% per
year. If the required return on Computech is 17%, what is...

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 $0.75 coming 3 years from
today. The dividend should grow rapidly - at a rate of 48% per year
- during Years 4 and 5, but after Year 5, growth should be a
constant 7% per year. If the required return on Computech is 13%,
what is...

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 $0.75 coming 3 years from today. The
dividend should grow rapidly - at a rate of 37% per year - during
Years 4 and 5; but after Year 5, growth should be a constant 8% per
year. If the required return on Computech is 12%, what is...

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 $2.00 coming 3 years from today. The
dividend should grow rapidly - at a rate of 37% per year - during
Years 4 and 5, but after Year 5, growth should be a constant 10%
per year. If the required return on Computech is 18%, what is...

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 $2.00 coming 3 years from today. The
dividend should grow rapidly - at a rate of 41% per year - during
Years 4 and 5, but after Year 5, growth should be a constant 10%
per year. If the required return on Computech is 18%, what is...

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 40% per year - during
Years 4 and 5, but after Year 5, growth should be a constant 4% per
year. If the required return on Computech is 12%, what is...

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