Question

Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to On = 4%. a. If Do = $1.50 and rs = 11%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is its expected dividend yield at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. % What is its capital gains yields at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. %

Answer 1

Terminal Value =D0*(1+g)^n*(1+gn)/(R-gn) =1.50*(1+20%)^2*(1+4%)/(11%-4%) =32.09143
Stock Price Today =D0*(1+g)/(1+Required Rate)+D0*(1+g)^2/(1+Required Rate)^2+Terminal Value/((1+Required Rate)^2
=1.50*1.20/1.11+1.50*1.20^2/1.11^2+32.09143/1.11^2 =29.4209 or 29.42

Dividend Yield =D0*(1+g)/P0 =1.50*1.20/29.4209 =6.12%

Capital Gain Yield =11%-6.12% =4.88%