Question

Microtech Corporation is expanding rapidly. Because it needs to retain all of its earnings, it does not currently pay any dividends. Investors expect Microtech to begin paying dividends eventually, with the first dividend of $1 coming three years from today. The dividend should grow rapidly—at a rate of 50 percent per year—during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8 percent per year. If the required return on the stock is 15 percent, what is the value of the stock today?



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  • CreatedNovember 24, 2014
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