Preferred Stock Valuation

Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 11% of its $100 par value. Preferred stock of this type currently yields 7%. Assume dividends are paid annually.

1. What is the estimated value of Rolen's preferred stock? Round your answer to the nearest cent
2. Suppose interest rate levels have risen to the point where the preferred stock now yields 12%. What would be the new estimated value of Rolen's preferred stock? Round your answer to the nearest cent.

Value of Operations

Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 13%.

1. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.

2. Calculate the value of Kendra's operations. Do not round intermediate calculations. Round your answer to the nearest cent.