# stock valuation 7

This homework submission should include all calculations, completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading the assigned chapters, address the following questions:

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. Turboâ€™s last dividend was \$1.15, and the required rate of return on the stock is 12%.

Complete the following calculations:

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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.
1. Kassidyâ€™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 stockâ€™s required rate of return? Assume the market is in equilibrium with the required return equal to the expected return.
1. McCaffreyâ€™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%. McCaffreyâ€™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. McCaffreyâ€™s has 50,000 shares of stock outstanding.

Calculate the following:

1. McCaffreyâ€™s value of operations
2. The companyâ€™s total value
3. The estimated value of common equity
4. The estimated per-share stock price

For additional details, please refer to the Homework Guidelines and Rubric document in the Assignment Guidelines and Rubrics section of the course.