Taussig Technologies Corporation (TTC) has been growing at a rate of 18% per yea

Question

Taussig Technologies Corporation (TTC) has been growing at a rate of 18% per year in recent years. This same growth rate is expected to last for another 2 years, then to decline to gn = 6%.

a. If D0 = $2.20 and rs = 8.00%, what is TTC's stock worth today? Round your answer to two decimal places at the end of the calculations.


b. What is its expected dividend yield at this time, i.e., during Year 1? Round your answer to two decimal places at the end of the calculations.
%

c. What is its capital gains yields at this time, i.e., during Year 1? Round your answer to two decimal places at the end of the calculations.

Explanation / Answer

Supernatural growth rate gs=18% for 2 yrs Then normal growth gn =6% a. Do=2.20, Rs=Ks=8% what is P0 D1 = DO*(1+Gs) = 2.20*(1+18%) = $2.60 D2 = D1*(1+Gs) = $2.60*(1+18%) = $3.07 D3=D2*(1+Gn) = 3.07*(1+6%) =$3.25 P2 = D3/(Ks-Gn) = 3.25/(8%-6%) = $162.50 P0 will be given by below eqn as It has supernormal growth for 2 yrs & then becomes a consant growth stock. So Horizion Value at Y2 = P2/(1+ks)^2 = $162.50/(1+8%)^2 = $139.32 P0 = D1/(1+ks)^1 + D2/(1+Ks)^2 + P2/(1+ks)^2 ie P0 = 2.60/(1+8%)^1 + 3.07/(1+8%)^2 + $139.32 ie P0 = $144.36 ..............Ans (a) DIv Yield = Div/Stock Price SO Yield for Y1 = D1/P0 SO Yield = D1/P0 = 2.60/144.36 = 1.80% .............Ans B) For stock holdings, the capital gains yield will be the change in price divided by the original (purchase) price. It is Calculated as: Capital Gains Yield = (P1-P0)/P0 = (170.34-144.36)/144.36 =18.00% Where: P0 = Original price of the stock P1 = Current/Selling price of the stock

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