Problem1. Taussig Technologies Corporation (TTC) has been expanding at a rate of 20% per year in recent years. This same growth rate is anticipated to last for another two years, then decline to gn= 6%.
a) If D0= $1.60 and rs= 10%, what is the TTC's stock worth today? What are its expected dividend and capital gains yields at this time, that is, throughout Year one?
b) Now suppose that TTC's period of supernormal growth is to last for five years rather than two years. How would this affect the price, capital gains yield, and dividend yield?
c) What will TTC's dividend and capital gains yields be once its period of the supernormal growth ends? (Hint: These clauses will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.)
d) Of what interest to investors is changing relationship between capital gains yields and dividend over time?