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?
problem2.) What will club's stock price be at the end of the first year?
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%