Excel Online Structured Activity: Nonconstant growth

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\mathrm{.}25$ coming $3$ years from today. The dividend should grow rapidly $-$ at a rate of $37\%$ per year $-$ during Years $4$ and $5$; but after Year $5,$ growth should be a constant $9\%$ 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 $12\%,$ what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations. Nonconstant growth

Year $3$ Dividend, D$3$ $$1\mathrm{.}25$

Supernormal growth rate, gs $37\mathrm{.}00\%$

Normal growth rate, gn $9\mathrm{.}00\%$

Required return, rs $12\mathrm{.}00\%$

$37\mathrm{.}00\%37\mathrm{.}00\%9\mathrm{.}00\%$

$0123456$

Dividends $00$ $$1\mathrm{.}25$

P$5$

Cash flows to common stockholders $00$

PV of cash flows to common stockholders

Stock Price, P$0$

Alternatively, using Excel NPV function:

Stock Price, P$0$

Formulas

$37\mathrm{.}00\%37\mathrm{.}00\%9\mathrm{.}00\%$

$0123456$

Dividends $00$ $$1\mathrm{.}2500$ #N$/$A #N$/$A #N$/$A

P$5$ #N$/$A

Cash flows to common stockholders $00$ #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, P$0$ #N$/$A

Alternatively, using Excel NPV function:

Stock Price, P$0$ #N$/$A