ONCONSTANT GROWTH Computech Corporation is expanding rapidly and currentl eeds to retain all of its earnings; hence, it does not pay dividends. However, investor pect Computech to begin paying dividends, beginning with a dividend of $0.50 comin; vears from today. The dividend should grow rapidly-at a rate of 35% per year-durin. ars 4 and 5, but after Year 5, growth should be a constant 7% per year. If the require curn on Computech is 13%, what is the value of the stock today?

ONCONSTANT GROWTH Computech Corporation is expanding rapidly and currentl eeds to retain all of its earnings; hence, it does not pay dividends. However, investor pect Computech to begin paying dividends, beginning with a dividend of $0.50 comin; vears from today. The dividend should grow rapidly-at a rate of 35% per year-durin. ars 4 and 5, but after Year 5, growth should be a constant 7% per year. If the require curn on Computech is 13%, what is the value of the stock today?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 13P: Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is...

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Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of 0.50 coming 3 years from today. The dividend should grow rapidlyat a rate of 80% per yearduring Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 16%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)?
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