Question

Conroy Consulting Corporation (CCC) has been growing at a rate of 30% per year in recent years. This same nonconstant growth rate is expected to last for another 2 years (g0,1 = g1,2 = 30%) (10 points)

a. If D0 = $2.50, r0 = 12%, and g1 = 7%, then what is CCC’s stock worth today? What are its expected dividend yield and capital gains yield at this time?

b. Now assume that CCC’s period of nonconstant growth is to last another 5 years rather than 2 years (g0,1 = g1,2 = g1,2 = g2,3 = g3,4 = g4,5 = 30%). How would this affect its price, dividend yield, and capital gains yield? Answer in words only.

c. What will CCC’s dividend yield and capital gains yield be once its period of nonconstant growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of nonconstant growth, and the calculations are very easy).

Answer 1