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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:

A. Calculate the value of the stock today.

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:

A. Calculate the value of the stock today.

B. Calculate P1^ and P2^.

C. Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.

2. 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.

3. 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:

A. McCaffrey’s value of operations

3. 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:

A. McCaffrey’s value of operations

B. The company’s total value

C. The estimated value of common equity

D. The estimated per-share stock price