Problemmicrotech corporation is expanding rapidly and, Ask an Expert

Accounting

Problem:

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 $0.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 27% per year - during Years 4 and 5; but after Year 5, growth should be a constant 6% per year.

Required:

Question: If the required return on Microtech is 18%, what is the value of the stock today?

Note: Please show basic calculation

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169516

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