eBook Assume that it is now January 1, 2020, Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 16% annual growth rate for the next 5 years. Other firms will have developed comparable technology by the end of 5 years, and WME's growth rate will slow to 4% per year indefinitely. Stockholders require a return of 11% on WME's stock. The most recent annual dividend (De), which was paid yesterday, was $2.00 per share. a. Calculate WME's expected dividends for 2020, 2021, 2022, 2023, and 2024. Do not round intermediate calculations. Round your answers to the nearest cent. 2-$ Dios-$ 02022- Dios- b. Calculate the value of the stock today, Po. Proceed by finding the present value of the dividends expected at the end of 2020, 2021, 2022, 2023, and 2024 plus the present value of the stock price that should exist at the end of 2024. The year end 2024 stock price can be found by using the constant growth equation. Notice that to find the December 31, 2024, price, you must use the dividend expected in 2025, which is 4% greater than the 2024 dividend. Do not round intermediate calculations. Round your answer to the nearest cent $ c. Calculate the expected dividend yield (D/Po), capital gains yield, and total return (dividend yield plus capital gains yield) expected for 2020. (Assume that PPs and recognize that the capital gains yield is equal to the total return minus the dividend yield.) Do not round intermediate calculations. Round your answers to two decimal places D/Po- Capital gains yield Expected total return w % Then calculate these same three yields for 2025. Do not round intermediate calculations. Round your answers to two decimal places. A-Z Ch 09 End-of-Chapter Problems Stocks and Their Valuation Then calculate these same three yields for 2025. Do not round intermediate calculations. Round your answers to two decimal places DUPS- Capital gains yield. % Expected total return d. How might an investor's tax situation affect his or her decision to purchase stocks of companies in the early stages of their lives, when they are growing rapidly, versus stocks of older, more mature firms? When does we's stock become "mature" for purposes of this question? 1. It is of no interest to investors whether they receive dividend income or capital gains income, since taxes on both types of income can be delayed the stock is sold. The firm's stock is "mature" at the end of 2024.. 11. People is high-income tax brackets will be more inclined to purchase "growth" stocks to take the capital gains and thus delay the payment of taxes a later date. The firm's stock is "mature" at the end of 2024 III. Some investors need cash dividends, while ethers would prefer growth. Investors must pay taxes each year on the capital gain during the year, while taxes a the dividends can be delayed until the stock is sold. The firm's stock is "mature" at the end of 2024 IV. It is of no interest to investors whether they receive dividend income or capital gains income, since both types of income are always taxed at the same rate. The firm's stock is "mature" at the end of 2024 V. It is of no interest to investors whether they receive dividend income or capital gains income, since taxes on both types of income must be paid in the current year. The firm's stock is "mature" at the end of 2024. e. Suppose your boss teils you she believes that wHe's annual growth rate will be only 12% during the next 5 years and that the firm's long-nun growth rate will be only 4% Without doing any calculations, what general effect would these growth rate changes have on the price of WME's stock? 1. Since the firm's supernormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower. The total return om the stock will remain the same, but the dividend yield wil be larger and the capital gains yield will be amater than they were with the anginal growth rates II. Since the firm's supernormal and normal growth rates are lowes, the dividends and, hence, the present value of the stock price will be lower. The total from the stock will remain the same, but the dividend yield will be smaller and the capital gains yield will be larger than they were with the original growth rates III. Since the firm's supernormal and normal growth rates are lower the dividends and, hence, the present value of the stock price will be lower. The total returni from the stock will decline, and both the dividend yield and the capital gains yield will be smaller than they were with the anginal growth rates. IV. Since the firm's supernormal and normal growth rates are lower, the dividends and, hence, the prevent value of the stock price will be lower. The total return from the stock will increase, and both the dividend yield and the capital gains yield will be greater than they were with the original growth rates v Since the firm's supernormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower. The total return from the stock will decline, and the dividend yield and the capital gains yield will be the same AZ Home Ch09. End-of-Chapter Problems Stocks and Their Valuation x urses talog and Study Tools antalOptions llege Success Tips areer Success Tips Delp Live Feedback e. Suppose your boss tells you she believes that WHE's annual growth rate will be only 12% during the next 5 years and that the firm's long-run growth rate will be only 4th Without doing any calculations, what general effect would these growth rate changes have on the price of WME's stock? 1. Since the firm's supernormal and hermal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower. The total retu from the stock will remain the same, but the dividend yield will be larger and the capital gains yield will be smaller than they were with the original growth rates 11. Since the firm's supemormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower The total retur from the stock will remain the same, but the dividend yield will be smaler and the capital gaina yield will be larger than they were with the original growth rates 11. Since the firm's supernormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower the total t from the stock will decline, and both the dividend yield and the capital gains yield we be smaller than they were with the anginal growth rates IV. Since the fire's supernormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower the total retu from the stock will increase, and both the dividend yield and the capital gains yield wil be greater than they were with the original growth rates Since the firm's supemermal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower the from the stock will decline, and the dividend yield and the capital gains yield will be the same long-run growth rate is 4% 1. As the required return increases, the price of the stock goes down, but both the capital gains and dividend yields decrease inay 11. As the required return increases, the price of the stock goes up, and both the capital gains and evidend yields may 11 As the required return increases, the price of the stock goes up, and both the capital gains and evidend yields decrease italy IV. As the required retum increases, the price of the stock remains the same since both the capital gens and dividend yields remain content required retum increases, the price of the stock goes down, but bith the capital gains and dividend yieds insa ina Grade it Now Save & Continue Continue without saving NX O LO