In: Finance
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 gn = 4%.
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% |