a. 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?
b. Suppose Bon Temps is expected to experience zero growth during the first three years and then to resume its steady-state growth of 6% in the fourth year. What is the stock's value now? What are its expected dividend yield and its capital gains yield in Year 1? In Year 4?
c. Assume that Bon Temps' earnings and dividends are expected to decline by a constant 6% per year-that is, g = 26%. Why might someone be willing to buy such a stock, and at what price should it sell? What would be the dividend yield and capital gains yield in each year?
d. Bon Temps' financial statements show the following information:
Average cost of funds 10.0 %
EBIT $ 500,000
Total capital $1,250,000
EPS $2.00
Shares outstanding 150,000
Marginal tax rate 30.0%
(1) Compute the company's economic value added (EVA)
(2) Interpret the value you computed in part l(1).
e. Suppose that normally Bon Temps' P/E ratio is 20x. Using the information given in part (l), estimate the market price per share for Bon Temps' common stock.