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 needs to retain all of its earnings; hence, it does not pay dividend

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Answer 1

Answer #1

	Required rate=	12.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	0		0	1.12	0
2	0	0.00%	0		0	1.2544	0
3	0	0.00%	0.5		0.5	1.404928	0.35589
4	0.5	23.00%	0.615		0.615	1.57351936	0.39084
5	0.615	23.00%	0.75645	20.424	21.18045	1.762341683	12.01836
	Long term growth rate (given)=	8.00%			*Value of Stock =*	*Sum of discounted value =*	12.77

Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Unless dividend for the year provided
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 5 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

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Answer 2

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