Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 14% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT's growth rate will slow to 8% per year indefinitely. Stockholders require a return of 11% on RT's stock. The most recent annual dividend (Do), which was paid yesterday, was $1.35 per share. a. Calculate RT's expected dividends for t = 1,t = 2, t = 3, t = 4, and t = 5. Do not round intermediate calculations. Round your answers to the nearest cent. D1 - $ Ds $ b. Calculate the estimated intrinsic value of the stock today, Po. Proceed by finding the present value of the dividends expected at t -1, -2,t = 3, t = 4, and t = 5 plus the present value of the stock price that should exist at t -5, Ps. The Ps stock price can be found by using the constant growth equation. Note that to find P's you use the dividend expected att 6, which is 8% greater than the t. 5 dividend. Do not round intermediate calculations. Round your answer to the nearest cent. Ch 08a:Selected End-of-Chapter Problems - Basic Stock Valuation OX Ds = $ b. Calculate the estimated intrinsic value of the stock today, P. Proceed by finding the present value of the dividends expected at t = 1,t = 2, 3,1-4, and t = 5 plus the present value of the stock price that should exist at t-5, Ps. The P's stock price can be found by using the constant growth equation. Note that to find Ps you use the dividend expected at t = 6, which is 8% greater than the t = 5 dividend. Do not round intermediate calculations. Round your answer to the nearest cent. c. Calculate the expected dividend yield (D1/ Po ), the capital gains yield expected during the first year, and the expected total return (dividend yield plus capital gains yield) during the first year. (Assume that Po = Po, and recognize that the capital gains yield is equal to the total return minus the dividend yield.). Do not round Intermediate calculations. Round your answers to two decimal places. Expected dividend yield Capital gains yield Expected total return Also calculate these same three yields for t=5(e.g., Ds/Ps ). Do not round intermediate calculations. Round your answers to two decimal places. Expected dividend yield Capital gains yield Expected total return

a.Expected Dividend = D0(1+g)^number of years D1 1.54 D2 1.75 D3 2.00 D4 2.28 D5 2.60 Value of Stock today = 1.54/(1.11)+1.75/(1.11)^2 + 2/(1.11)^3 + 2.28/(1.11)^4 + 2.60/(1.11)^5 + 2.60(1.08)/(1.11)^5(11%-8%) =$62.86 c.Dividend yield = Expected Dividend/Current Price =1.54/62.86 2.45% Capital Gains yield = 11%-2.45% 8.55% Total return = 11% Price at the end of 5 years = 55.55 Dividend yield = 5.05% Capital gains yield = 5.95% Total Return = 11% .

Nonconstant Growth Stock Valuation Reizenstein Techno…

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a.Expected Dividend = D0(1+g)^number of years
D1	1.54
D2	1.75
D3	2.00
D4	2.28
D5	2.60

Value of Stock today = 1.54/(1.11)+1.75/(1.11)^2 + 2/(1.11)^3 + 2.28/(1.11)^4 + 2.60/(1.11)^5 + 2.60(1.08)/(1.11)^5(11%-8%)
=$62.86

c.Dividend yield = Expected Dividend/Current Price
=1.54/62.86
2.45%

Capital Gains yield = 11%-2.45%
8.55%

Total return = 11%

Price at the end of 5 years = 55.55
Dividend yield = 5.05%
Capital gains yield = 5.95%
Total Return = 11%

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