RT has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology and RTs growth rate will slow to 5% per year indifferently. Stockholders require a return of 12% on RTs stock. The most recent annual dividend (D0) which was paid yesterday was $1.75 per share.
A. Calculate RTs expected dividends for t = 1, t = 2, t = 3, t= 4 and t = 5.
B. Calculate the estimated intrinsic value of the stock today, ^Po. Proceed by finding the present value of the dividends expected at t = 1 t = 2, t = 3, t= 4 and t = 5 plus the present value of the stock price that should exist at t = 5, ^P5. The ^P5 price can be found by using the constant growth equations. Note that to find ^P5 you use the dividend expected at t = 6, which is 5% greater than t = 5 dividend.
C. Calculate the expected dividend yield (D1/^P0), the capital gains yield expected during the first year and the expected total return (dividend yield plus capital gains yield) during the first year. Assume that ^Po = Po and recognize that the capital gains yield is equal to the total return minus the dividend yield). Also calculate these three yields for t = 5 (e.g., D6/^P5)
SHOW ALL WORK IN DETAIL TO SUPPORT ANSWERS TO INCLUDE FORMULAS