Chapter 7 Problem 20 Build a Model help

Chapter 7 Problem 20 Build a Model help - Chapter 7. Ch...

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Unformatted text preview: Chapter 7. Ch 7-20 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 1 2 3 Dividend PV of dividends 2. Find the expected dividend yield. Dividend yield = / Dividend yield = / Dividend yield = 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= Cap. Gain yield= 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 (g 1 = g 2 = 20%). a. If D = $1.60, r s = 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 r s g s g L = D 3 = Terminal value = P 2 = = r s g L = P Recall that the expected dividend yield is equal to the next expected annual dividend divided by the price at the...
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Chapter 7 Problem 20 Build a Model help - Chapter 7. Ch...

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