Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years, then decline to -5%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Download spreadsheet Nonconstant Growth and Corporate Valuation-41fb6f.xlsx a. It Do = $1.70 and ro - 8%, what is TTC's stock worth today? Round your answer to the nearest cent. $ per share What are its expected dividend, and capital gains yields at this time, that is, during Year 17 Round your answers to two decimal places, Dividend yield: % Capital gains yield: %% b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? Round your answer for the price to the nearest cent and for the dividend yield and capital gains yield to two decimal places. The price will to $ per share. % The dividend yield will 9 to The capital gains yield will c. What will TTC's dividend and capital gains yields be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.) Round your answers to two decimal places per share. b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? Round your answer for the price to the nearest cent and for the dividend yield and capital gains yield to two decimal places, The price will y to $ The dividend yield will to The capital gains yield will c. What wil TTC's dividend and capital gains yields be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.) Round your answers to two decimal places. Dividend yield: % to Capital gains yield: d. TTC recently introduced a new line of products that has been wildly successful. On the basis of this success and anticipated future success, the following free cash flows were projected (in Millions): Year 1 2 3 4 5 6 7 8 9 10 + FCF $6.2 $10.8 $27.3 $43.2 $68.6 $90.7 $111.3 $129.4 $146.3 $159.5 After the 10th year, TTC's financial planners anticipate that its free cash flow will grow at a constant rate of 5%. Also, the firm concluded that the new product caused the WACC to fall to 7%. The market value of TTC's debt is $1,100 million, it uses no preferred stock, it has zero nonoperating assets; and there are 20 million of common stock outstanding. Use the corporate valuation model to value the stock. Round your answer to the nearest cent $ per share E 6 B D 1 Nonconstant Growth and Corporate Valuation 2 3 Last dividend, D. $1.70 4 Required rate of retum, to 8% 5 Supomommal growth rate, 9. 20% Nomal growth rate, 5% 7 Period of supemommal growth 2 years 8 9 a. Finding TTC's stock worth today, its expected dividend, and capital gains yields 10 Year Dividend Formulas 11 1 #NA 12 2 #N/A 13 14 Horizon value at the end of year 2 #NA 15 Stock price #NA 16 Dividend yield during year 1 #N/A 17 Capital gains yield during year 1 #N/A 18 19 b. Finding the price, dividend yield, and capital gains yield 20 Period of supemommal growth 21 Year Dividend 22 1 #N/A 23 2 #N/A 24 3 #N/A 25 4 #N/A 26 5 #N/A 27 28 Horizon value at the end of year 5 #N/A 29 Stock price #N/A 30 Dividend yield during yoar 1 #NA 31 Capital gains yield during year 1 #N/A 32 33 c. Finding TTC's dividend and capital gains yields once its period of supernormal growth ends 34 Dividend yield #NA 35 Capital gains yield #NA 36 37 d. Finding the stock value based on the corporate valuation model approach 38 Year FCF (in millions) 5 years 36 37 d. Finding the stock value based on the corporate valuation model approach 38 Year FCF (in millions) 39 1 $6.2 40 2 $10.8 41 3 $27.3 42 4 $43.2 43 5 $68.6 44 6 $90.7 45 7 $111.3 46 8 $129.4 47 9 $146.3 48 10 $159.5 49 50 WACC 7% 51 Growth rate after the 10th year, 9. 5% 52 Number of common stock outstanding 20 millions 53 Number of preferred stock 0 millions 54 Value of nonoperating assets $0 millions 55 Market value of debt $1,100 millions 56 57 HV of FCF at the end of year 10 millions 58 59 PV of FCF 1-0 at year millions 60 PV of HV at year 0 millions 61 Market value of operations millions 62 Market value of nonoperating assets milions 63 Total corporate value millions 64 Less: market value of debt millions 65 Intrinsic value of common equity millions 66 67 Intrinsic value per share 68 69 70 71 #NA #N/A #N/A #NA #N/A #N/A #N/A #NA #N/A
