Question

Taussig Technologies Corporation (TTC) has been growing at a rate of 12% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to g_n = 4%.

1. If D₀ = $1.30 and r_s = 10.00%, what is TTC's stock worth today? Round your answer to the nearest cent. Do not round your intermediate calculations.
   1. $
2. What is its expected dividend yield at this time, that is, during Year 1? Round your answer to two decimal places. Do not round your intermediate calculations.
   1. %
3. What is its capital gains yields at this time, that is, during Year 1? Round your answer to two decimal places. Do not round your intermediate calculations.
   1. %
      
      
      
      
      

Answer 1

a.

	Required rate=	10.00%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	1.3	12.00%	1.456		1.456	1.1	1.3236
2	1.456	12.00%	1.63072	28.266	29.89672	1.21	24.70803
	Long term growth rate (given)=	4.00%			Value of Stock =	Sum of discounted value =	26.03

Where
Current dividend =	Previous year dividend*(1+growth rate)^corresponding year

Total value = Dividend	+ horizon value (only for last year)
Horizon value =	Dividend Current year 2 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=	(1+ Required rate)^corresponding period
Discounted value=	total value/discount factor

b. Dividend yield = dividend in 1 year/current stock price =1.456/26.03 = 5.59%

c. Capital gains yield = required rate-dividend yield = 10-5.59=4.41%