Question

Calibri (Body) Eto Wrap Text General Merge & Center $. % Conditional Format Formatting as Table x RAMA 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 $1.00 coming 2 years from today. The dividend should grow rapidly at 1a rate of 38% per year during Years 3 and 4, but after Year 4, growth should be a constant 4% per year. 1. If the required return on Computech is 18%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your 2 intermediate calculations. 12. What are the dividend and capital gains yields during year 32... 1 Select destination and press ENTER or choose Paste

Answer 1

1.
=1/1.18+1/1.18*(1.38/1.18)+1/1.18*(1.38/1.18)^2+1/1.18*(1.38/1.18)^2*1.04/(18%-4%)
=11.607912

2.
Dividend yield=1*1.38*1.38^2/(1/1.18*(1.38)^2+1/1.18*(1.38)^2*1.04/(18%-4%))=19.32000%

Capital gains yield=18%-19.32000%=-1.32000%