Computech Corporation is expanding rapidly and currently needs to retain all of

Question

Computech Corporation is expanding rapidly and currently needs to retain all of ts corneg 3 years "rom today. The dividend should Vow rapdrat .rate or 30% per yeanding seen 4 sed Si be ane, wear s, piwth show be , eran ione per rea ireene.d ten a csedech a value of the stock today? Do not round intermediate caloulstions Round your answer to the nearest cent eemings; hence, it dons not pay dividends. Howeve investors expedt Computech to begn paying Svders, bnginnng with a duidend of L.00 rat ithe

Explanation / Answer

D3 1.00 Required Return 14%
D4 1.30 30%
D5 1.69 30%
D6 1.859 10%
P5 = D6/Ke-g
P5 = 1.859/(0.14-0.10)
46.475
P0 = D3/(1+r)^3 + D4/(1+r)^4 + D5/(1+r)^5 + P5/(1+r)^5
P0 =  1.00/(1.14)^3 + 1.30/(1.14)^4 + 1.69/(1.14)^5 + 46.475/(1.14)^5
P0 = 26.46

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