Question
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
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 $1.00 coming 3 years from today. The dividend should grow rapidly, at a rate of 50% per year, during years 4,5, and 6. After that growth rate should be a constant 8% per year.
The company's stock has a market beta of 1.46. Assuming a risk-free rate of 3.5% and an expected return on the stock market of 13%, what is its stock price today?
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