Assignment 3-1, Question 1 1a.
| 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: | ||||||||||||
| $ | % | $ | ||||||||||
| D1= | 1.15 | x | 1.15 | = | 1.32 | |||||||
| D2= | 1.32 | x | 1.15 | = | 1.52 | |||||||
| D3= | 1.52 | x | 1.13 | = | 1.72 | |||||||
| PV of Dividends = | 1.32 | + | 1.52 | + | 1.72 | = | $3.63 | |||||
| 1.12 | (1.12)^2 | (1.12)^3 | ||||||||||
| 2. Find the PV of Turbo’s stock price at the end of Year 3: | ||||||||||||
| P3^ = | ____D4____ | = | __ _D3(1+g)______ | |||||||||
| rs-g | rs-g | |||||||||||
| G=.06% | ||||||||||||
| = | 1.72(1.06) | RS=.12% | ||||||||||
| .12-.06 | ||||||||||||
| = | $30.39 | |||||||||||
| PV of P3^ = | 30.39 | = | $21.71 | |||||||||
| (1.12)^3 | ||||||||||||
| 3. Sum the two components to find the value of the stock today: | ||||||||||||
| Value of current stock (P0^) = | $21.71 | + | $3.63 | = | $25.34 | Frist year number | ||||||
| 1b. Calculate P1^ and P2^. | ||||||||||||
| P1^ = | 1.52 | + | 1.72 | + | PPP | = | NNN | Second year number | ||||
| 1.12 | (1.12)^2 | (1.12)^2 | ||||||||||
| P2^ = | GGG | + | PPP | = | UUU | UUU | Third Year number | |||||
| 1.12 | 1.12 | |||||||||||
| 1c. Calculate the dividend yields and capital gains yield for Years 1, 2, and 3. | ||||||||||||
| Year | Dividend Yield | + | Capital Gains Yield | = | Total Return | |||||||
| 1 | $1.3225/MMM ≈ ??? | + | ($26.93 – $MMM) / $MMM ≈ ??? | ≈ | 12% | |||||||
| 2 | $1.5209/NNN ≈ ???? | + | ($28.64 – $NNN) / $NNN ≈ NNN | ≈ | 12% | |||||||
| 3 | $1.7186/UUU≈ ???? | + | (30.36 – $UUU) / $UUU ≈ ???% | ≈ | 12% | |||||||
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