Explore BrainMass

Explore BrainMass

    Supernormal Growth Stock Valuation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same supernormal growth rate is expected to last for another 2 years (g1 = g2 = 20%).

    a.) If D0 = $1.60, rs = 10%, and gl = 6%, then what is TTC's stock worth today? What is expected dividend yield and its capital gains yield at this time?

    © BrainMass Inc. brainmass.com June 4, 2020, 12:28 am ad1c9bdddf
    https://brainmass.com/business/finance/supernormal-growth-stock-valuation-340539

    Solution Preview

    The worth of the stock is the present value of dividends. Dividends grow at 20% for 2 years and then at 6%
    D1 = 1.60 X 1.20 = 1.92
    D2 = 1.92 X 1.20 = 2.304
    D3 = 2.304 X 1.06 ...

    Solution Summary

    The solution explains how to calculate the price of a stock with supernormal growth

    $2.19

    ADVERTISEMENT