Question:
Microtech Corporation is expanding rapidly, and it currently needs to retain all of it's 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 dividends should grow rapidly- at a rate of 50 percent per year- during years 4 and 5. After year 5, the company should grow at a constant rate of 8 percent per year. If the required return on the stock is 15 percent, what is the value of the stock today?