g. Suppose Bon Temps is expected to experience zero growth during the first three years and then to resume its steady-state growth of 6% in the fourth year. The appropriate rate of return for Bon Temps stock is 16%.

-What is the stocks value now?

-What are its expected dividend yield and its capital gains yield in Year 1? In Year 4?

Background Info:

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% 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%