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 $0.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 48% per year - during Years 4 and 5; but after Year 5, growth should be a constant 10% per year.

Year 3 Dividend, D3 $0.75 Supernormal growth rate, gs 48.00% Normal growth rate, gn 10.00% Required return, I's 13.00% 48.00% 48.00% 10.00% 0 3 4 5 6 Dividends 0 O $0.75 P5 Cash flows to common stockholders 0 0 PV of cash flows to common stockholders Stock Price, Po Alternatively, using Excel NPV function: Stock Price, Po Formulas 48.00% 48.00% 10.00% 0 3 4 5 6 ON Dividends 0 $0.7500 #N/A #N/A #N/A P5 #N/A Cash flows to common stockholders 0 0 #N/A #N/A #N/A PV of cash flows to common stockholders #N/A #N/A #N/A #N/A #N/A Stock Price, Po #N/A Alternatively, using Excel NPV function: Stock Price, Po #N/A