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Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more...

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Accounting

Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more
electricity than any solar panel currently on the market. As a result, Ultimate is expected to
experience a 15 percent annual growth rate for the next five years. When the five-year period ends,
other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5
percent per year indefinitely. Stockholders require a return of 12 percent on Ultimate's stock. The
firm's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share.
a. Calculate the value of the stock today.
b. Calculate the dividend yield, hat(D)1P0, the expected capital gains yield, and the expected total
return (dividend yield plus capital gains yield) for this year. Calculate these same three yields
for Year 5.
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