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, then decline to gn = 7%. a. If Do = $1.30 and rs = 8%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. What is its expected dividend yield at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. What is its capital gains yields at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. % b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? I. Due to the longer period of supernormal growth, the value of the stock will be lower for each vear. The total return as well as the distribution between dividend vield and capital

Corporate Fin Focused Approach
5th Edition
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Author:EHRHARDT
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Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 21P
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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, then decline to gn = 7%.
a. If Do = $1.30 and rs = 8%, what is TTC's stock worth today? Do not round intermediate
calculations. Round your answer to the nearest cent.
What is its expected dividend yield at this time, that is, during Year 1? Do not round
intermediate calculations. Round your answer to two decimal places.
%
What is its capital gains yields at this time, that is, during Year 1? Do not round intermediate
calculations. Round your answer to two decimal places.
b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2
years. How would this affect the price, dividend yield, and capital gains yield?
I. Due to the longer period of supernormal growth, the value of the stock will be lower for
each year. The total return as well as the distribution between dividend yield and capital
gains yield will differ for the duration of the supernormal growth period.
II. Due to the longer period of supernormal growth, the value of the stock will be higher for
each year. Although the total return will remain the same, the distribution between
dividend yield and capital gains yield will differ for the duration of the supernormal growth
period.
III. Due to the longer period of supernormal growth, the value of the stock will be lower for
each year. Although the total return will remain the same, the distribution between
dividend yield and capital gains yield will differ for the duration of the supernormal growth
period.
IV. Due to the longer period of supernormal growth, the value of the stock will be higher for
each year. The total return as well as the distribution between dividend yield and capital
gains yield will differ for the duration of the supernormal growth period.
V. Due to the longer period of supernormal growth, the value of the stock will be higher for
each year. The total return as well as the distribution between dividend yield and capital
gains yield will remain the same for the duration of the supernormal growth period.
-Select- v
c. 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:
Transcribed Image Text: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, then decline to gn = 7%. a. If Do = $1.30 and rs = 8%, what is TTC's stock worth today? Do not round intermediate calculations. Round your answer to the nearest cent. What is its expected dividend yield at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. % What is its capital gains yields at this time, that is, during Year 1? Do not round intermediate calculations. Round your answer to two decimal places. b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? I. Due to the longer period of supernormal growth, the value of the stock will be lower for each year. The total return as well as the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. II. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. Although the total return will remain the same, the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. III. Due to the longer period of supernormal growth, the value of the stock will be lower for each year. Although the total return will remain the same, the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. IV. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. The total return as well as the distribution between dividend yield and capital gains yield will differ for the duration of the supernormal growth period. V. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. The total return as well as the distribution between dividend yield and capital gains yield will remain the same for the duration of the supernormal growth period. -Select- v c. 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:
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