Question

eBook 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 gn = 5%. If D0 = $2.50 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.   % Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? Due to the longer period of supernormal growth, the value of the stock will be higher for each year. The total return as well as the distribution between dividend yield and capital gains yield will remain the same for the duration of the supernormal growth period. Due to the longer period of supernormal growth, the value of the stock will be lower for each year. The total return as well as the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. Although the total return will remain the same, the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. Due to the longer period of supernormal growth, the value of the stock will be lower for each year. Although the total return will remain the same, the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. The total return as well as the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. -Select-IIIIIIIVVItem 4 What will TTC's dividend and capital gains yields be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.) Round your answers to two decimal places. Dividend yield:   % Capital gains yield:   % Of what interest to investors is the changing relationship between dividend and capital gains yields over time? Some investors need cash dividends, while others would prefer growth. Also, investors must pay taxes each year on the dividends received during the year, while taxes on the capital gain can be delayed until the gain is actually realized. Some investors need cash dividends, while others would prefer growth. Also, investors must pay taxes each year on the capital gain during the year, while taxes on the dividends can be delayed until the stock is sold. It is of no interest to investors whether they receive dividend income or capital gains income, since both types of income are always taxed at the same rate. It is of no interest to investors whether they receive dividend income or capital gains income, since taxes on both types of income must be paid in the current year. It is of no interest to investors whether they receive dividend income or capital gains income, since taxes on both types of income can be delayed until the stock is sold. -Select-IIIIIIIVVItem 7

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

1 e w 2 v . * 04:11 ENG 18-02-2020 13 X F1321 DO = YEAR DIVIDEND 2.5 GROWTH RATE 2.5 3.0000 3.6000 3.8160 20% 2.5*(1+20%) 20% 3*(1+20%) 5% 3.60*(1+5%) P2 - P2 = 03/(ke-g) 3.8160/(0.11-0.05) = 63.60 YEAR 1318 1319 1320 1321 1322 1323 1324 1325 1326 1327 1328 1329 1330 1331 1332 1333 1334 1335 1336 1337 1338 1339 b 1340 1341 1342 DIVIDEND + P2 3.000 67.20 PV FACTOR @ 11% 0.9009 0.8116 PV OF DIV + P2 2.70 54.54 PO = 57.24 5.24% DIVIDEND YIELD = D1/PO = 3/57.24 = CAPITAL GAIN YIELD = REQUIRED RETURN - DIVIDEND YIELD CAPITAL GAIN YIELD = 11% - 5.24% = 5.76% III. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. Although the total return will remain the same, the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. KE CAPM UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIEL ... :

? v L 1 ENG 01:26 18-02-2070 10 X G1349 X fix LET'S PROVE IT YEAR DIVIDEND 1349 1350 1351 1352 1353 1354 1355 1356 1357 1358 1359 1360 1361 GROWTH RATE 2.5 3.0000 3.6000 4.3200 5.1840 6.2208 6.5318 20% 20% 20% 20% 20% 5% P5 = P5 = D6/(ke-g) 6.5318/(0.11-0.05) = 108.86 1362 YEAR DIVIDEND + P5 m 1363 1364 1365 1366 1367 1368 1369 1370 1371 1372 1373 PV FACTOR @ 11% PV OF DIV + P5 3.0000 0.9009 2.70 3.6000 0.8116 2.92 4.3200 0.7312 3.16 5.1840 0.6587 3.41 115.0848 0.5935 68.30 PO = 80.50 in 3.73% DIVIDEND YIELD = D1/PO = 3/80.50 = CAPITAL GAIN YIELD = REQUIRED RETURN - DIVIDEND YIELD CAPITAL GAIN YIELD = 11% - 3.73% = UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE 7.27% PV, FV, ANNUITY KE CAPM LEASING DIR right clean YIEL ... :

| 0 = = = = = 3 g w ? v L 1 ENG 01:26 18-02-2070 10 X G1398 AS WE SEE FROM ABOVE CALCULATION, DIVIDEND YIELD DECREASES CAPITAL GAIN YIELD INCREASES STOCK PRICE ALSO INCREASES ONCE SUPER NORMAL GROWTH PERIOD OVER DIVIDEND YIELD WILL BE 6% DIVIDEND YIELD = D6/P5 = 6.5318/108.86 CAPITAL GAIN YIELD WILL BE 5% CAPITAL GAIN YIELD = 11% -6% = 6.00% 5.00% 1374 1375 1376 1377 1378 1379 1380 C 1381 1382 1383 1384 d 1385 1386 1387 1388 1389 1390 1391 1392 1393 1394 1395 1396 1. Some investors need cash dividends, while others would prefer growth. Also, investors must pay taxes each year on the dividends received during the year, while taxes on the capital gain can be delayed until the gain is actually realized. 1397 1398 KE CAPM UTILITY, SHARPE, beta convexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIEL...