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 39% 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 14%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.
|Dividend in Year-3 = 1.25|
|Dividend in Year-4 = 1.25 +39% = 1.74|
|Dividend in Yeara-5 = 1.74+39% = 2.42|
|Dividend for Year-6 = 2.42 +8% = 2.61|
|Horizon value at Year-5 = 2.61 / (14-8)% = 43.50|
|Year||Cashflows||PVF at 14%||Present value|
|Stock price today||25.72|
Get Answers For Free
Most questions answered within 1 hours.