Task: The Club Auto Parts Company has just recently been organized. It is anticipated to experience no growth for the next 2 years as it identifies its markets and acquires inventory. But, Club will grow at an annual rate of 5% in the third year and beginning with the fourth year must attain a 10% growth rate which it will sustain thereafter. The first dividend (d1) to be paid at the end of the first year is anticipated to be $.50 per share. Investors require a 15% rate of return on clubs stock.
problem1.) What is the current equilibrium stock price?
a. $5.00
b. $9.57
c. $8.75
d. $15.00
e. $12.43
problem2.) What will club's stock price be at the end of the first year?
a. $5.00
b. $9.56
c. $8.76
d. $15.00
e. $12.43
problem3.) What dividend yield and capital gains yield should an investor in Club expect for the first year?
a.) 0%; 15%
b.) 6%; 9%
c.) 3%; 12%
d.) 12%; 3%
e.) 10%; 5%