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. a) Calculate the value of the stock today.
2. b) Calculate P1^ and P2^.
3. c) CalculatethedividendyieldandcapitalgainsyieldforYears1,2,and3.

(Worksheet attached)

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% + + + + natural growth period: $ 1.3225 + $ $ = = $ = $ $ $ Capital Gains Yield ($26.93 - $25.23) / $25.23 6.74% = Total Return 12%