ZuoTi.Pro
Question

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

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 28% 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 12%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.

business   finance   
1 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

✔ Recommended Answer
Answer #1

Year 3 dividend = 1.5

Year 4 dividend = 1.5 (1 + 28%) = 1.92

Year 5 dividend = 1.92 (1 + 28%) = 2.4576

Year 6 dividend = 2.4576 (1 + 6%) = 2.605056

Value at year 5 = D6 / required rate - growth rate

Value at year 5 = 2.605056 / 0.12- 0.06

Value at year 5 = 2.605056 / 0.06

Value at year 5 = 43.4176

Value of the stock = 1.5 / (1 + 0.12)3 + 1.92 / (1 + 0.12)4 + 2.4576 / (1 + 0.12)5 + 43.4176 / (1 + 0.12)5

Value of the stock = $28.32

1 0
Add a comment
Know the answer?
Add Answer to:
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Similar Homework Help Questions

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

    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 21% 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...

    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 $1.00 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 5% per year. If the required return on Computech is 15%, what is...

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

    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 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...

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

    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 41% 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 15%, what is...

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

    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 $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 30% 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 15%, what is...

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

    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 22% per year-during Years 4 and 5; but after Year 5, growth should be a constant 9% per year. If the required return on Computech is 17%, what is the value of the...

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

    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 50% 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 16%, what is...

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

    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 26% 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...

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

    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 47% per year - during Years 4 and 5, but after Year 5, growth should be a constant 9% per year. If the required return on Computech is 15%, what is...

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

    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 $1.00 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 6% per year. If the required return on Computech is 18%, what is...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT