Common stock valuation with various growth rates

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Common stock valuation with various growth rates over a period

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 $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 16% per year - during Years 4 and 5, but after Year 5 growth should be a constant 4% per year. If the required return on Microtech is 14%, what is the value of the stock today? Round the answer to the nearest hundredth.

Reference no: EM1317046

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