Question: Nonconstant growth
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.25 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 6% per year. If the required return on Computech is 14%, what is the value of the stock today?