Question
Technology Trade & Energy (TTE) Corporation has been growing at a rate of 20% per year in recent years. This same growth rate is expected
Technology Trade & Energy (TTE) Corporation 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, then decline to gn = 6%.
a. If D0 = $1.60 and rs = 10%, what is TTEs stock worth today? What are its expected dividend yield and capital gains yield at this time? (4 points)
b. Now assume that TTEs period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? Answer in words only. (4 points)
c. What will TTEs dividend and capital gains yields 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; the calculations are very easy.) (4 points)
d. Explain why investors are interested in the changing relationship between dividend and capital gains yields over time. (4 points
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