Stock Valuation Calculations

Anonymous
timer Asked: Oct 18th, 2018
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Question Description

Instructions

This submission should include all calculations, completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading the assigned chapters, address the following questions:

  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

The words should be in 2 pages in APA style.

Unformatted Attachment Preview

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 = $ ...
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Spartacus
School: UC Berkeley

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Anonymous
Thanks, good work

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