Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years (g₁ = g₂ = 20%).

a. If D₀ = $1.60, r_s = 10%, and g_n = 6%, what is TTC's stock worth today? What are its expected dividend yield and capital gains yield at this time?

1. Find the price today.

D₀

$1.60

r_s

10.0%

g_s

20%

Short-run g; for Years 1-2 only.

g_L

6%

Long-run g; for Year 3 and all following years.

20%

6%

Year

0

1

2

3

Dividend

PV of dividends

= D₃

= Terminal value = P₂ =

= r_s