Question

Assume that Bon Temps is expected to experience supernormal growth of 30% for the next 3 years, then to return to its long-run constant growth rate of 6%. What is the stock’s value under these conditions? What are its expected dividend yield and its capital gains yield in Year 1? In Year 4?

Answer 1

Expected value one year from now=D2/(k-g)

=2.25/(16%-6%)

=22.5

Step-by-step explanation: