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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
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 $0.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 16% per year - during Years 4 and 5; but after Year 5, growth should be a constant 9% per year. Calculate the stock price PO. 3. Stock valuation Nonconstant growth Year 3 Dividend, D3 Supernormal growth rate, gs Normal growth rate, gn Required return, rs $0.50 16.00% 9.00% 12.00% 16.00% 9.00% 5 0 1 16.00% 3 $0.50 2 4 0 0 Growth rates Years Dividends P5 Cash flows to common stockholders (sum rows 38 and 39) 0 0 Stock Price, PO using NPV
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