H G E D C A 6 Rework Problem 5-19. Conroy Consulting Corporation (CCC) has been growing at a rate of 30% per year in 7 recent years. This same growth rate is expected to last for another 2 years (g, = g2= 20% ). 8 10 a. If Do $2.50, rg = 12%, and gn = 7%, what is CCC's stock worth today? What are its expected dividend 11 yield and capital gains yield at this time? 12 13 1. Find the price today 14 $2.50 Dn 15 12.0% 16 rg Short-run g; for Year 1 only. 30% 17 go,1 Short-run g; for Year 2 only Long-run g; for Year 3 and all following years 30% 18 1.2 7% 19 7% 30% 20 2 3 0 Year 21 Dividend 22 23 PV of dividends 24 25 D2x(1+g) D3 26 Horizon value = P2 = = 27 =rs-gL 28 = Po 29 30 31 2. Find the expected dividend yield. 32 33 34 Recall that the expected dividend yield is equal to the next expected annual dividend divided by the price at the 35 beginning of the period. 36 PO 37 Dividend yield = 38 Dividend yield 39 Dividend yield = 40 41 3. Find the expected capital gains yield. 42 43 44 45 The capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. C 46 Cap. Gain yield Expected return Dividend yield 47 Cap. Gain yield= Cap. Gain yield= 48 49 50 51 Alternatively 52 one year, then divide the change in price from today to one year from now by the current price. To find the price one 53 year from now, we will have to find the present values of the terminal value and second year dividend to time period 54 one an recognize that the capital gains yield measures capital appreciation, hence solve for the price in we c 55 56 57 58 59 61 (P1-Po) Cap. Gain yield- Cap. Gain yield- Cap. Gain yield- 64 65 66 67 b. Now assume that CCC's period of nonconstant growth is to last for 5 years rather than 2 years. would this affect its price, dividend yield, and capital gains yield? How 69 70 71 72 1. Find the price today 73 $2.50 74 12.0% 75 30% Short-run g, for Years 1-5 only 76 Long-run g; for Year 6 and all following years 30% 78 Year 2 79 80 Dividend 81 H G E D C A 6 Rework Problem 5-19. Conroy Consulting Corporation (CCC) has been growing at a rate of 30% per year in 7 recent years. This same growth rate is expected to last for another 2 years (g, = g2= 20% ). 8 10 a. If Do $2.50, rg = 12%, and gn = 7%, what is CCC's stock worth today? What are its expected dividend 11 yield and capital gains yield at this time? 12 13 1. Find the price today 14 $2.50 Dn 15 12.0% 16 rg Short-run g; for Year 1 only. 30% 17 go,1 Short-run g; for Year 2 only Long-run g; for Year 3 and all following years 30% 18 1.2 7% 19 7% 30% 20 2 3 0 Year 21 Dividend 22 23 PV of dividends 24 25 D2x(1+g) D3 26 Horizon value = P2 = = 27 =rs-gL 28 = Po 29 30 31 2. Find the expected dividend yield. 32 33 34 Recall that the expected dividend yield is equal to the next expected annual dividend divided by the price at the 35 beginning of the period. 36 PO 37 Dividend yield = 38 Dividend yield 39 Dividend yield = 40 41 3. Find the expected capital gains yield. 42 43 44 45 The capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. C 46 Cap. Gain yield Expected return Dividend yield 47 Cap. Gain yield= Cap. Gain yield= 48 49 50 51 Alternatively 52 one year, then divide the change in price from today to one year from now by the current price. To find the price one 53 year from now, we will have to find the present values of the terminal value and second year dividend to time period 54 one an recognize that the capital gains yield measures capital appreciation, hence solve for the price in we c 55 56 57 58 59 61 (P1-Po) Cap. Gain yield- Cap. Gain yield- Cap. Gain yield- 64 65 66 67 b. Now assume that CCC's period of nonconstant growth is to last for 5 years rather than 2 years. would this affect its price, dividend yield, and capital gains yield? How 69 70 71 72 1. Find the price today 73 $2.50 74 12.0% 75 30% Short-run g, for Years 1-5 only 76 Long-run g; for Year 6 and all following years 30% 78 Year 2 79 80 Dividend 81