Question
I need help with part C Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more electricity than any solar
I need help with part C
Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15 percent annual growth rate for the next five years. When the five-year period ends, other firms will have developed comparable technology, and Ultimates growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 12 percent on Ultimates stock. The firms most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. a. Calculate the value of the stock today. b. Calculate the dividend yield, /P0, the expected capital gains yield, and the expected total return (dividend yield plus capital gains yield) for this year. Calculate these same three yields for Year 5. c. Suppose your boss believes that Ultimates annual growth rate will be only 12 percent during the next five years and that the firms normal growth rate will be only 4 percent. Under these conditions, what is the price of Ultimates stock?
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