Assume that Bon Temps is a constant growth company whose last dividend (D, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a 4% rate.
Now assume that Bon Temp’s dividend is expected to grow 30% the first year, 20% the second year, 10% the third year, and return to its long run constant growth rate of 4%. What is the stocks value under these conditions? What are its expected dividend and capital gains yields in Year 1? Year 4?