$10-6$: Valuing Nonconstant Growth Stocks

Nonconstant growth

Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect

Microtech to begin paying dividends, beginning with a dividend of $$1\mathrm{.}00$ coming $3$ years from today. The dividend should grow rapidly $-$ at a rate of $27\%$ per

year $-$ during Years $4$ and $5$; but after Year $5,$ growth should be a constant $6\%$ per year. If the required return on Microtech is $12\%,$ what is the value of the

stock today? Round your answer to the nearest cent.

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