Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it...

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Computech Corporation is expanding rapidly and currently needsto 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. Thedividend should grow rapidly-at a rate of 33% per year-during Years4 and 5; but after Year 5, growth should be a constant 7% per year.If the required return on Computech is 12%, what is the value ofthe stock today? Do not round intermediate calculations. Round youranswer to the nearest cent.

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3.6 Ratings (542 Votes)

Step1 Dividend per share for Years 34 and 5 Dividend in Year 3 D3 150 per share Dividend in Year 4 D4 19950 150 x 133 Dividend in Year 5 D5 26534 19950 x 133 Step2 See Answer

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Computech Corporation is expanding rapidly and currently needsto 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. Thedividend should grow rapidly-at a rate of 33% per year-during Years4 and 5; but after Year 5, growth should be a constant 7% per year.If the required return on Computech is 12%, what is the value ofthe stock today? Do not round intermediate calculations. Round youranswer to the nearest cent.