In: Finance
Problem 8-21
Nonconstant Growth Stock Valuation
Conroy Consulting Corporation (CCC) has been growing at a rate...
Problem 8-21
Nonconstant Growth Stock Valuation
Conroy Consulting Corporation (CCC) has been growing at a rate
of 16% per year in recent years. This same non-constant growth rate
is expected to last for another 2 years (g0,1 =
g1,2 = 16%).
- If D0= $2.50, rs= 8% and gL =
7%, then what is CCC's stock worth today? Round your answer to the
nearest cent. Do not round your intermediate computations.
$
What is its expected dividend yield at this time? Round the answer
to two decimal places. Do not round your intermediate
computations.
%
What is its capital gains yields at this time? Round the answer to
two decimal places. Do not round your intermediate
computations.
%
- Now assume that CCC's period of supernormal growth is to last
another 5 years rather than 2 years (g0,1 =
g1,2 = g2,3 = g3,4 =
g4,5 = 16%). How would this affect its price, dividend
yield, and capital gains yield?
-Select-IIIIIIIVVItem 4
I.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.
II.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.
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.
IV.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.
V.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.
- What will CCC's dividend yield and capital gains yield 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, and the calculations are very easy.)
Round the answers to two decimal places. Do not round your
intermediate computations.
Dividend yield |
% |
Capital gains yield |
% |