An eCommerce Company is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% in the 3rd year, and at a constant rate of 6% thereafter. The company's last divident was $1.15 and the required rate of return on the stock is 12%.

Calculate the Present Value of dividends paid:

D1= $1.15 x 1.15% = $1.3225

D2= $ x =

D3= $ x =

PV of Dividends = __________ + __________ + ___________ = _____________

Find the Present Value of the company's stock price at the end of year 3:

P3^= D4/rs-g = D3(1+g)/rs-g

=______________

=

PV of P3^= ____________ = $

Sum the two components to find the value of stock today:

Value of current stock (P0)= $ + $ = $

1b. Calculate P1^ and P2^.

1c. Calculate the dividend yields and capital gains yields for years 1,2, and 3.

Year Dividend Yield + Capital Gains Yield = Total Return

1 $1.3225/$25.23 ~ 5.24% + ($26.93-$25.23)/$25.23~6.74% ~ 12%

2 ______________________ + _________________________ ~ _____ %

3 _______________________ + _________________________ ~ ______ %