Problem: Von Burns Technologies Ltd. (VBTL) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years. (Pr. 10-19)
a. If D0 = $1.60, k = 10%, gn = 6%, what is VBTL stock worth today? What are its expected dividend yield and capital gains yield at this time?
b. Now assume the VBTL's period of supernormal growth is to last another 5 years rather than 2 years. How would this affect its price, dividend yield, and capital gains yield? No calculations necessary to answer this Part b.
c. What will be VBTL's dividend yield and capital gains yield once its period of supernormal growth ends? (HINT: these values will be the same regardless of whether you examine the of 2 years or 5 years of supernormal growth; the calculations are quite easy.)
d. Of what interest to investors is the changing relationship between dividend yield and capital gains yield over time.