CHAPTER 8-21

Nonconstant Growth Stock Valuation

Conroy Consulting Corporation (CCC) has been growing at a rate of 20% per year in recent years. This same non-constant growth rate is expected to last for another 2 years (g_0,1 = g_1,2 = 20%).

1. If D₀= $1.00, r_s= 8% and g_L = 7%, then what is CCC's stock worth today? Round your answer to the nearest cent. Do not round your intermediate computations. $ _______ What is its expected dividend yield at this time? Round the answer to two decimal places. Do not round your intermediate computations. _______ % What is its capital gains yields at this time? Round the answer to two decimal places. Do not round your intermediate computations. _______ %

• What will CCC's dividend yield and capital gains yield be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth, and the calculations are very easy.) Round the answers to two decimal places. Do not round your intermediate computations.

  Dividend yield	_______%
  Capital gains yield	_______%