Question

Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, WME is expected to experience a 15 percent annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and WME's growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 12 percent on WME's stock. The most recent annual dividend, which was paid yesterday, was $1.75 per share.

Int. Rate	12%
	YR 0	YR 1	YR 2	YR 3	YR 4	YR 5	YR 6
Growth Rate		15%	15%	15%	15%	15%	5%
Dividend	1.75	2.0125	2.314375	2.661531	3.06076	3.519875	3.695868
Price at Yr 5						52.79813
Cash Flows		2.0125	2.314375	2.661531	3.06076	56.318
a. Use the NPV function to calculate the current stock price.									1.05
Price =
b. Use the NPV function to calculate the expected stock price in years 1-4.
Price =
c. What dividend yield and capital gains yield should an investor expect each year?
(Example: For year 0 yield, you buy the stock at year zero, receive the dividend at year 1 and sell the stock at year 1.)
	YR 0	YR 1	YR 2	YR 3	YR 4	YR 5
Dividend Yld
Cap Gains Yld
Total Yield

Answer 1

YR 0	YR 1	YR 2	YR 3	YR 4	YR 5	YR 6
Growth Rate	15%	15%	15%	15%	15%	5%
Dividend	1.75	2.0125	2.314375	2.661531	3.06076	3.519875	3.695868	3.8806614
Price at Yr 5						52.79813	55.43802
Cash Flows		2.0125	2.314375	2.661531	3.06076	56.318	59.133888
a. Use the NPV function to calculate the current stock price.									1.05
Price =	$   39.44
b. Use the NPV function to calculate the expected stock price in years 1-4.
Year	1	2	3	4	5
Price =	$   42.16	$   44.90	$   47.63	$   50.28	₹ 52.80
c. What dividend yield and capital gains yield should an investor expect each year?
(Example: For year 0 yield, you buy the stock at year zero, receive the dividend at year 1 and sell the stock at year 1.)
	YR 0	YR 1	YR 2	YR 3	YR 4	YR 5
Dividend Yld	4.44%	4.77%	5.15%	5.59%	6.09%	6.67%
Cap Gains Yld	6.90%	6.51%	6.07%	5.57%	5.00%	5.00%
Total Yield	11.33%	11.28%	11.23%	11.16%	11.09%	11.67%

NPV formula:
=NPV(0.12,I10:L10) where I10 to L10 are the cash flows