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 $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 26% 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 16%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.

$ ____

Answer #1

**The value of the stock is computed as shown
below:**

**= Dividend in year 3 / (1 + required rate of
return) ^{3} + Dividend in year 4 / (1 + required rate of
return)^{4} + Dividend in year 5 / (1 + required rate of
return)^{5} + 1 / (1 + required rate of return)^{5}
[ (Dividend in year 5 (1 + growth rate) / ( required rate of return
- growth rate ) ]**

= $ 1.50 / 1.16^{3} + ( $ 1.50 x 1.26 ) /
1.16^{4} + ( $ 1.50 x 1.26^{2} ) / 1.16^{5}
+ 1 / 1.16^{5} [ ($ 1.50 x 1.26^{2} x 1.07) / (
0.16 - 0.07) ]

= $ 1.50 / 1.16^{3} + $ 1.89 / 1.16^{4} + $
2.3814 / 1.16^{5} + $ 28.3122 / 1.16^{5}

**= $ 16.62 Approximately**

Feel free to ask in case of any query relating to this 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 $1.50 coming 3 years from today. The
dividend should grow rapidly-at a rate of 29% per year-during Years
4 and 5; but after Year 5, growth should be a constant 5% per year.
If the required return on Computech is 18%, what is the value of
the...

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 $1.50 coming 3 years from today. The
dividend should grow rapidly-at a rate of 23% 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 14%, what is the value
of the...

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 $1.50 coming 3 years from today. The
dividend should grow rapidly-at a rate of 15% per year-during Years
4 and 5; but after Year 5, growth should be a constant 5% per year.
If the required return on Computech is 15%, what is the value of
the...

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 20% per year - during
Years 4 and 5, but after Year 5, growth should be a constant 5% 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 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...

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 43% 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 the value of
the...

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 19% 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 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 $0.50 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 6% per
year. If the required return on Computech is 16%, what is...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 37 seconds ago

asked 37 seconds ago

asked 7 minutes ago

asked 7 minutes ago

asked 7 minutes ago

asked 10 minutes ago

asked 22 minutes ago

asked 47 minutes ago

asked 53 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago