Please show how to do this on a financial calculator. Microtech Corporation is e

Question

Please show how to do this on a financial calculator.

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 $1.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 50% per year - during Years 4 and 5; but after Year 5, growth should be a constant 7% per year. If the required return on Microtech is 14%, what is the value of the stock today? Round your answer to the nearest cent.

Explanation / Answer

Ans) Year Dividend Present Value factor @ 14% Present value of the share Value 1 $       1.75 0.877 $                               1.54 2 $       1.75 0.769 $                               1.35 3 $       1.75 0.675 $                               1.18 4 $       2.63 0.592 $                               1.55 5 $       2.81 0.519 $                               1.46 5 $    43.81 0.519 $                            22.76 $                            29.83 Total cost flow of dividend = Dividend/(Ke-Growth) (3.067)/(0.14-0.07) $                            43.81 3.0067 Dividend Total Price of the share = $                                           29.83

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