Solution to FM12 Ch 08 P20 Build a Model

# Solution to FM12 Ch 08 P20 Build a Model - A 1 2 3 4 5 6 7...

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6/29/2006 Chapter 8. Solution for Ch 8-20 Build a Model 1. Find the price today. \$1.60 10.0% 20% Short-run g; for Years 1-2 only. 6% Long-run g; for Year 3 and all following years. 20% 6% Year 0 1 2 3 Dividend \$1.60 1.92 2.3 2.44 PV of dividends \$1.7455 1.9041 2.4422 \$50.4595 61.0560 4.0% \$54.1091 2. Find the expected dividend yield. Dividend yield = / Dividend yield = \$1.920 / \$54.109 Dividend yield = 3.55% 3. Find the expected capital gains yield. The capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. Cap. Gain yield= Expected return - Dividend yield Cap. Gain yield= 10.0% - 3.55% Cap. Gain yield= 6.45% Rework Problem 8-18. Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years. a. If D 0 = \$1.60, r = 10%, and g n = 6%, what is TTC's stock worth today? What are its expected dividend yield and capital gains yield at this time? D

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## This note was uploaded on 08/01/2009 for the course FI FI504 taught by Professor J.marsh during the Summer '09 term at DeVry Chicago.

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Solution to FM12 Ch 08 P20 Build a Model - A 1 2 3 4 5 6 7...

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