3-1 Question 1
Assignment 3-1, Question 1
1a. Calculate the value of the stock today:
1. Calculate the PV of the dividends paid during the supernatural growth period:
$ % $
D1= 1.15 x 1.15 = 1.3225
D2= x =
D3= x =
PV of Dividends = + + = $
2. Find the PV of Turbo's stock price at the end of Year 3:
P3^ = ____D4____ = __ _D3(1+g)______
rs-g rs-g
=
=
PV of P3^ = = $
3. Sum the two components to find the value of the stock today:
Value of current stock (P0) = $ + $ = $
1b. Calculate P1^ and P2^.
P1^ = $ + $ + $ = $
P2^ = $ + $ = $
1c. Calculate the dividend yields and capital gains yield for Years 1, 2, and 3.
Year Dividend Yield + Capital Gains Yield = Total Return
1 $1.3225/$25.23 ≈ 5.24% + ($26.93 - $25.23) / $25.23 ≈ 6.74% ≈ 12%
2 + ≈
3 + ≈
3-1 Question 2
Assignment 3-1, Question 2
rps = %
3-1 Question 3
Assignment 3-1, Question 3
3a. Calculate McCaffrey's value of operations.
Vop = FCF(1+g) = = $
WACC - g
3b. Calculate the company's total value.
Total Value = Value of Operations + Value of nonoperating assets
= $ + $ = $
3c. Calculate the estimated value of common equity.
Value of equity = Total value - Value of debt
= $ - $ = $
3d. Calculate the estimated per-share stock price.
Price per share = Value of Equity ÷ Number of Shares
= $ ÷ $ = $
5-2 Question 1
Assignment 5-2, Question 1
a.