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Year 3 Dividend, D3 Supernormal growth rate, g Normal growth rate, gn Required return, r $0.75 25.00% 8.00% 12.00% 250% 25.00Computech 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 25% per year - during Years 4 and 5; but after Year 5, growth should be a constant 8% per year. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet If the required return on Computech is 12%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations.

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Answer #1
Dear Student Lets understand and summaraise the question
Year 3 Dividend 0.75
Super normal growth in Year 4 and year 5 25%
Normal Growth 8%
Required Rate of Return 12%
Particulars Y1 Y2 Y3 Y4 Y5 Y6
Dividend 0 0 0.75 0.9375 1.171875 1.265625
Market Value 31.64063
Total Return 0 0 0.75 0.9375 1.171875 32.90625
PVF @12% 0.893 0.797 0.712 0.636 0.567 0.507
Present Value 0 0 0.534 0.59625 0.664453 16.68347
Present value of stock 18.47817
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