Capital Gains Yield ($26.93 - $25.23) / $25.23 6.74% ($28.64 - $26.93) / $26.93 6.35% ($30.36 - $28.64) / $28.64 6.00% Dividend Yield Total Return Year $1.3225/$25.23 5.24% $1.52/$26.93 5.65% $1.72/$28.64 6.00% 1 12% + 2 12% 12%

Capital Gains Yield ($26.93 - $25.23) / $25.23 6.74% ($28.64 - $26.93) / $26.93 6.35% ($30.36 - $28.64) / $28.64 6.00% Dividend Yield Total Return Year $1.3225/$25.23 5.24% $1.52/$26.93 5.65% $1.72/$28.64 6.00% 1 12% + 2 12% 12%

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.2.3MBA

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Question

100%

Summarize and discuss the implications of the findings for the business or potential business transaction.

----------------------

Turbo Technology Computers is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next two years, at 13% in the third year, and at a constant rate of 6% thereafter. Turbo's last dividend was $1.15, and the required rate of return on the stock is 12%.

Calculate the value of the stock today. - $25.23
Calculate P1^ and P2^. - P1^$26.93; P2^ $28.63
Calculate the dividend yield and capital gains yield for Years 1, 2, and 3. - Attachment

Capital Gains Yield
($26.93 - $25.23) / $25.23 6.74%
($28.64 - $26.93) / $26.93 6.35%
($30.36 - $28.64) / $28.64 6.00%
Dividend Yield
Total Return
Year
$1.3225/$25.23 5.24%
$1.52/$26.93 5.65%
$1.72/$28.64 6.00%
1
12%
+
2
12%
12%

Definition Definition Increase in the value of a capital asset and the amount that is realized when the asset is sold off. A capital gain may be short-term or long-term depending on the tenure for which the asset is held.

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