Tanner Technologies Corporation (TTC) has been growing at a rate of 20 percent per year in recent years. This same growth rate is expected to last for another two years.
a. If D0 = $1.60, rs = 10%, and gnorm = 6%, what is TTC’s stock worth today? What are its expected dividend yield and capital gains yield at this time?
b. Assume that TTC’s period of supernormal growth lasts another five years rather than two years. Without doing any calculations, explain how this change would affect its price, dividend yield, and capital gains yield.
c. What will be TTC’s dividend yield and capital gains yield once its period of supernormal growth ends?
d. Of what interest to investors is the changing relationship between dividend yield and capital gains yield over time?