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 $0.50 coming 3 years from today. The dividend should grow rapidly-at a rate of 35% 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 the value of the stock today?
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 $0.50 coming 3 years from today. The dividend should grow rapidly-at a rate of 35% 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 the value of the stock today?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Answer and explain in excel format the attached question
Transcribed Image Text:## Nonconstant Growth
CompuTech Corporation is experiencing rapid expansion and needs to retain all earnings; thus, it does not currently distribute dividends. However, investors anticipate that CompuTech will start paying dividends, beginning with a dividend of $0.50 expected 3 years from today.
This dividend should grow rapidly—at a rate of 35% per year—during Years 4 and 5. After Year 5, the growth is expected to stabilize at a constant 7% per year. If the required return on CompuTech is 13%, what is the present value of the stock?
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