Varigrowth Inc. just paid a dividend of ?$1.02(i.e,D0=$1.02?). Such dividend is

Question

Varigrowth Inc. just paid a dividend of ?$1.02(i.e,D0=$1.02?). Such dividend is expected to grow by 35?% per year for the next 3?years, after which it is expected to grow at a? long-run rate of 55?%. Assuming investors require a 14?% return on the? stock,?

a) What is the price at? t=3? ---?(to the nearest? cent)

?b) What is its price? today? --- (to the nearest? cent)

?c) What is your total rate of return? (% to two? decimals) if in one year the price is ?$27.9 and the dividend is $1.39??

What is your dividend? yield? --- %

What is your capital gain? (loss) yield? --- %?

Explanation / Answer

Through the photo I could make up the following data( assuming data from photo)

a)Price AT t=3 = D0 * ( 1+ Growth rate of first 3 years)3 * ( 1+ stable growth rate)/( Returns - Stable Growth rate)
2.77 * ( 1+10%)3 *(1+4%)/(11%-4%) = 54.78

b) r =11%
Price at T=0 = D0 * ( 1+growth)/(1 + r) + D0 * ( 1+growth)2/(1 + r)2 + D0 * ( 1+growth)3/(1 + r)3 +
(Price at t=3)/(1+r)3 = 2.77 * ( 1+10%)/(1 + 11%) + 2.77 * ( 1+10%)2/(1 + 11%)2 + 2.77 * ( 1+10%)3/(1 + 11%)3 +
(Price at t=3)/(1+11%)3 = 8.161 + 40.052 = 48.21

c) Price = 48.37 , dividend = 3.04
Dividend Yield = dividend / current price of share = 3.04/48.37 = 6.28%
Capital Gain = (Price after 1 year - Current Price) /Current Price = ( 48.37 -48.21)/48.21 = 0.3318%

Best of Luck

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