The Bondurant Corporation just paid a dividend (D₀) of $2.50.

1. Five years ago, the company paid a dividend of $2.00 and we note that the growth in those five years was essentially constant each year. Based on this historical dividend growth, if you believe the company will continue with the same growth pattern indefinitely, what is the growth rate (g)? Hint: calculate the compound annual growth rate over the past five years and use that for g going forward.

2. Based on the above information please calculate:

D₁

D₂

D₃

3. Now, calculate P_0, assuming the required rate of return is 10%.

4. Calculate the expected dividend-yield and capital-gain-yield components of the expected total return.

5. Calculate P₁ using two different approaches referenced in WJLs presentation.

6. Now, there is a possibility that the growth will be 11% for three years going forward and will revert to the growth rate calculated above, thereafter.

Calculate:

D₁

D₂

D₃

D₄

7. What is P₀ (there are a couple of different models you can useone or the other will suffice)?

8. Calculate the dividend yield and the capital-gains yield during the first year, given the information in problem 6.

9. Calculate P₁ given the information in problem 6.