Brite- Lite Technologies (BLT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, BLT is expected to experience a 25% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and BLT’s growth rate will slow to 5% per year indefinitely. Shareholders require a return of 10% on BLT’s stock. The most recent annual dividend, which was paid yesterday, was $0.60 per share.
a) Calculate BLT’s expected dividends for t= 1, t= 2, t=3, t= 4, and t= 5.
b) Calculate the value of the stock today, P(0).
c) Calculate the expected dividend yield, D(1)/P(0), the capital gains yield expected during the first year, and the expected total return during the first year. Also calculate these same three yields for t=5.