Please show all work, including formulas. Thank You. Microtech Corporation is ex

Question

Please show all work, including formulas. Thank You.

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 $2.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 50% 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 15%, what is the value of the stock today? Round your answer to the nearest cent.

Explanation / Answer

Statemnet showing Current Price Particulars Time PVf@15% Amount PV Cash inflows (Dividend)                            3.00                   0.6575            2.00                   1.32 Cash inflows (Dividend)                            4.00                   0.5718            3.00                   1.72 Cash inflows (Dividend)                            5.00                   0.4972            4.50                   2.24 Cash inflows (Price)                          5.00                   0.4972          60.19                 29.92 Current Price of Stock                 35.19 P5= D6/ke-g P5 = 4.5*1.07/(15%-7%) P5 = 4.82/(8%) P5 = $60.19

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