8-20 Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have devel- oped comparable technology, and RT's growth rate will slow to 5% per year indefinitely. Stockholders require a return of 12% on RT's stock. The most recent annual dividend (D), which was paid yesterday, was $1.75 per share. a. Calculate RT's expected dividends fort 1, t = 2, t = 3, t = 4, and t = 5. b. Calculate the estimated intrinsic value of the stock today, P. Proceed by finding the present value of the dividends expected at t = 1,t = 2, t = 3, t = 4, and t 5 plus the present value of the stock price that should exist at t = 5, P. The stock price can be found by using the constant growth equation. Note that, to find , you use the dividend expected at t = 6, which is 5% greater than the t = 5 dividend. c. Calculate the expected dividend yield (D./f), the capital gains yield expected during the first year, and the expected total return (dividend yield plus capital gains yield) during the first year. (Assume that f = P, and recognize that the capital gains yield is equal to the total return minus the dividend yield.) Also calculate these same three yields for t = 5 (e.g., D./f)