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Taussig Technologies Corporation (TTC) has been growing at a rate of 12% per year in recent...

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%.

  1. If D0 = $1.30 and rs = 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. %




Solutions

Expert Solution

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%

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