Stock valuation calculations

timer Asked: Aug 3rd, 2018
account_balance_wallet $25

Question description

This homework submission should include all calculations, completed on the designated tabs of the Homework Student Workbook, and a word document explaining the implications of your findings for the business or business transaction, with citations in APA format.

  1. 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%.

Complete the following calculations:

  1. Calculate the value of the stock today.
  2. Calculate P1^ and P2^.
  3. Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.
  1. Kassidy's Kabob House has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock's required rate of return? Assume the market is in equilibrium with the required return equal to the expected return.
  1. McCaffrey's Inc. has never paid a dividend, and when the firm might begin paying dividends is not known. Its current free cash flow (FCF) is $100,000, and this FCF is expected to grow at a constant 7% rate. The weighted average cost of capital (WACC) is 11%. McCaffrey's currently holds $325,000 of non-operating marketable securities. Its long-term debt is $1,000,000, but it has never issued preferred stock. McCaffrey's has 50,000 shares of stock outstanding.

Calculate the following:

  1. McCaffrey's value of operations
  2. The company's total value
  3. The estimated value of common equity
  4. The estimated per-share stock price

For additional details, please refer to the Homework Guidelines and Rubric document.

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: $ 1.15 D1= D2= D3= % 1.15 x x x PV of Dividends = = = = + 2. Find the PV of Turbo's stock price at the end of Year 3: P3^ = ____D4____ rs-g = __ _D3(1+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 1 2 3 Dividend Yield $1.3225/$25.23 ≈ 5.24% + + + + rnatural growth period: $ 1.3225 + $ $ = = $ = $ $ $ Capital Gains Yield ($26.93 - $25.23) / $25.23 ≈ 6.74% = ≈ ≈ ≈ Total Return 12% Assignment 3-1, Question 2 rps = % Assignment 3-1, Question 3 3a. Calculate McCaffrey's value of operations. FCF(1+g) WACC - g Vop = = 3b. Calculate the company's total value. Total Value = Value of Operations =$ + Value of nonoperating as + $ 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 $ = $ = $ = $ = $ alue of nonoperating assets Value of debt Number of Shares Assignment 5-2, Question 1 a. Net Present Value (NPV): NPVx = NPVy = -$10,000 + -$10,000 + $ $ Internal Rate of Return (IRR): To solve for each project's IRR, find the discount rates that equate each NPV to ze IRRx IRRy = = % % Modified Internal Rate of Return (MIRR): To obtain each project's MIRR, begin by finding each project's terminal value (TV) of ca TVx = $6,500 (1.12)^3 TVy = $ Now, each project's MIRR is the discount rate that equates the PV of the TV to each pr MIRRx MIRRy = = % % Profitability Index (PI): To obtain each project's PI, divide its present value of future cash flows by its initial co PVx = NPVx + = $ + PVy = = NPVy $ + + PIx = = PVx $ ÷ ÷ PIy = = PVy $ ÷ ÷ + + $ $ + + $ + $ + $ $ = = es that equate each NPV to zero: ect's terminal value (TV) of cash inflows: + $ + $ + + $ + $ + es the PV of the TV to each project's cost, $10,000: ure cash flows by its initial cost. The PV of future cash flows can be found from the NPV calculated earlier: Cost of X $10,000 = $ Cost of Y $ = $ Cost of X $ = Cost of Y $ = ed earlier: $ $ $1,000 = $ $3,500 = $
FIN 550 Homework Guidelines and Rubric This course uses homework problems to demonstrate competence and allow for practice with calculations unique to finance. Complete all your calculations in the Homework Student Workbook. Then summarize your findings and discuss the implications of the findings for the business or potential business transaction. Follow the instructions for each question in Modules Three and Five and complete the assigned work. Guidelines for Submission: Each homework assignment must be submitted as a 1-page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. Any sources should be cited according to APA style. In addition, your Homework Student Workbook must be submitted to demonstrate all calculations. Critical Elements Accuracy of Calculations Analysis: Implications Articulation of Response Proficient (100%) Includes detailed calculations, including demonstration of each step taken to accurately complete the problem Includes an explanation of the implications of the findings for the business and/or potential business transaction Submission has no major errors related to citations, grammar, spelling, syntax, or organization Needs Improvement (70%) Includes calculations that are inaccurate and/or does not include all of the steps needed Explains the implications of the findings, but there are inaccuracies or explanation is insufficient Not Evident (0%) Includes calculations that are inaccurate and does not provide an explanation of calculations Does not include an explanation of the findings Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total Value 45 45 10 100%

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School: UT Austin

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