Snyder Computer Chips, Inc., is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15 percent during the next two years, at 13 percent in the third year, and at a constant rate of 6 percent there-after. Snyder’s last dividend was $1.15, and the required rate of return on the stock is 12 percent.
a. Calculate the value of the stock today.
b. Calculate P1 and P2.
c. Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.