Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribedimage text in transcribed

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 38% 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 17%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations. B D E F. H $1.50 38.00% 8.00% 17.00% 38.00% 4 38.00% 5 8.00% 6 0 1 0 2 0 3 $1.50 0 0 A 1 Nonconstant growth 2 3 Year 3 Dividend, D3 4 Supernormal growth rate, gs 5 Normal growth rate, On 6 Required return, rs 7 8 9 Dividends 10 P5 11 Cash flows to common stockholders 12 13 PV of cash flows to common stockholders 14 Stock Price, Po 15 16 Alternatively, using Excel NPV function: 17 Stock Price, Po 18 19 20 Formulas 21 22 23 Dividends 24 P5 25 Cash flows to common stockholders 26 27 PV of cash flows to common stockholders 28 Stock Price, Po 29 30 Alternatively, using Excel NPV function: 31 Stock Price, Po 0 1 0 2 0 3 $1.5000 38.00% 4 #N/A 38.00% 5 #N/A #N/A #N/A 8.00% 6 #N/A 0 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 32

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Directors Handbook

Authors: Glynis D Morris, Sonia McKay, Andrea Oates

5th Edition

1566768691, 978-1566768696

More Books

Students also viewed these Finance questions