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    Microtech Corporation is expanding rapidly, and it currently

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    7. Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.00 coming 3 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's dividend is expected to grow at a constant rate of 8 percent per year indefinitely. If the required return on the stock is 15 percent, what is the intrinsic value of the stock today?

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    Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, ...

    Solution Summary

    Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.00 coming 3 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's dividend is expected to grow at a constant rate of 8 percent per year indefinitely. If the required return on the stock is 15 percent, what is the intrinsic value of the stock today?

    $2.19

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