1. Assume that Bon Temps is expected to experience supernormal growth of 30% for the next 3 years, then to return to its long-run constant growth rate of 6%. What is the stocks value under these conditions? What are its expected dividend yield and its capital gains yield in Year 1? In Year 4?

2. Background:

Year 0 Dividend 2 Year 1 .12 2 Year 2 2.2472 Year 3 2.382 1) 2) Current Stock price = Dividend at year 1/ (Cost of Capital - Growth rate) = 2.12/ (0.16 - 0.06) 21.2 Expected Value on year from now= = Dividend at year 2/(Cost of Capital - Growth rate) = 2.2472/ (0.16 - 0.06) 22.472 Dividen yield= Dividend during year 1/ Share price = 2.12/ 21.2 10.00% Cpital Gain Yield Capital Gain/ Share price = ( 22.472 - 21.2)/21.2 6.00% Total Return =(Dividend +Capital Gain)/ 21.2 =(2.12+1.272)/21.2 16.00%