Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5? 3. Consider the scenario in Question 2, what is the dividend yield in Year 1 and Year 5? What is the expected capital gains yield in Year 1 and Year 5? What is the expected total return (dividend yield plus capital gains yield) for Year 1 and Year 5?
Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5? 3. Consider the scenario in Question 2, what is the dividend yield in Year 1 and Year 5? What is the expected capital gains yield in Year 1 and Year 5? What is the expected total return (dividend yield plus capital gains yield) for Year 1 and Year 5?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
2.Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 5?
3. Consider the scenario in Question 2, what is the dividend yield in Year 1 and Year 5? What is the expected
Transcribed Image Text:C07
GRAPH
INSTRUCTIONS
Chapter 7 Spreadsheet-Related Problem (C07)
Supernormal Growth Stock Valuation
1. The following model is set up to compete the value of a stock of a company that experiences
supernormal growth for a maximum of five years.
2. There are a number of instructions with which you should be familiar to use these computerized models.
These instructions appear in a separate worksheet labeled INSTRUCTIONS. If you have not already done
so, you should read these instructions now. To read these instructions, click on the worksheet labeled
INSTRUCTIONS.
INPUT DATA:
KEY OUTPUTS:
Nonconstant growth
Normal (constant) growth
Req. rate of return
Last dividend (DO)
Supernormal period
25.00%
Current price (P0)
$29.57
$34.59
2.00%
Price at the end of Year 4
11.00%
Dividend yield in Year 1
Dividend yield in Year 4
Cap. gains yield in Year 1
Cap. gains yield in Year 4
Total return both yrs
5.28%
$1.25
9.00%
4
years
5.72%
2.00%
11.00%
MODEL-GENERATED DATA:
Expected dividends:
PV of dividends:
Year
Year
1
1.56
1
1.41
1.95
1.59
3
2.44
1.79
4
3.05
4
2.01
5
Stock price:
Stock price:
End of Year 4
34.59
Today, PO
29.57
Yields in Year 4
Yields in Year 1
Dividend
9.00%
Dividend
5.28%
2.00%
11.00%
Capital Gain
Capital Gain
5.72%
Total
Total
11.00%
Transcribed Image Text:C07
GRAPH
INSTRUCTIONS
5
4
3
2
1
2
LO
LO
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