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.
4. 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.
5. 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

A D G H 1a. Calculate the value of the stock today: 1. Calculate the PV of the dividends paid during the supernatural growth period: $ D1= D2= 1.15 X 1.15 = 1.3225 8 = D3= 8 = PV of Dividends= + 2. Find the PV of Turbo's stock price at the end of Year 3: P3 = D4 Is-g = D31+gl re-g = = PV of P3 = = $ . Sum the two components to find the value of the stock toda Value of current stock (P0) = $ 1b. Calculate P1 and P2^. Pf= $ + = $ + $ = $ $ $ + = $ P = $ $ + = $ 1c. Calculate the dividend yields and capital gains yield for Years 1, 2, an Year 1 2 3 Dividend Yield + $1.3225/$25.235.24% + + + K Capital Gains Yield ($26.93-$25.23)/$25.236.74% = Rd Total Return 12% R R Z O