Taussig Technologies Corporation (TTC) has been growing at a rate of 19% per yea

Question

Taussig Technologies Corporation (TTC) has been growing at a rate of 19% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to gn = 8%.

If D0 = $1.00 and rs = 9.00%, what is TTC's stock worth today? Round your answer to the nearest cent. Do not round your intermediate calculations.
$

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.
%

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.
%

What will TTC's dividend and capital gains yields be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.)
Round your answers to two decimal places.

Dividend yield
%

Capital gains yield
%

Explanation / Answer

Terminal value = 1.529/(0.09-0.08)
Stock price is sum of present values

Dividend yield when supernormal growth period ends = 1.529/152.9=1.00%
capital gain yield = 8% or rate of growth

Dividend Terminal Value Total Present value D0 $1.000 D1 $1.190 $1.19 $1.09 D2 $1.416 $152.939 $154.35 $129.92 D3 $1.529 $1.53 Stock price $131.01

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