Investors expect microtech to begin paying dividends

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Reference no: EM131352328

Nonconstant growth

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 40% 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.

Reference no: EM131352328

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