Question
Use the following information to answer the next three questions: Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200 percent
Use the following information to answer the next three questions:
Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, WME is expected to experience a 15 percent annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and WME's growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 12 percent on WME's stock. The most recent annual dividend, which was paid yesterday, was $1.75 per share.
| Int. Rate | 12% | ||||||||
| YR 0 | YR 1 | YR 2 | YR 3 | YR 4 | YR 5 | YR 6 | |||
| Growth Rate | 15% | 15% | 15% | 15% | 15% | 5% | |||
| Dividend | 1.75 | 2.0125 | 2.314375 | 2.661531 | 3.06076 | 3.519875 | 3.695868 | ||
| Price at Yr 5 | 52.79813 | ||||||||
| Cash Flows | 2.0125 | 2.314375 | 2.661531 | 3.06076 | 56.318 | ||||
| a. Use the NPV function to calculate the current stock price. | 1.05 | ||||||||
| Price = | |||||||||
| b. Use the NPV function to calculate the expected stock price in years 1-4. | |||||||||
| Price = | |||||||||
| c. What dividend yield and capital gains yield should an investor expect each year? | |||||||||
| (Example: For year 0 yield, you buy the stock at year zero, receive the dividend at year 1 and sell the stock at year 1.) | |||||||||
| YR 0 | YR 1 | YR 2 | YR 3 | YR 4 | YR 5 | ||||
| Dividend Yld | |||||||||
| Cap Gains Yld | |||||||||
| Total Yield | |||||||||
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