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%
+
+
+
+
rnatural growth period:
$
1.3225
+
$
$
=
=
$
=
$
$
$
Capital Gains Yield
($26.93 – $25.23) / $25.23 ? 6.74%
=
?
?
?
Total Return
12%
Assignment 3-1, Question 2
rps
=
%
Assignment 3-1, Question 3
3a. Calculate McCaffrey’s value of operations.
FCF(1+g)
WACC – g
=
Value of Operations
+
Value of nonoperating as
+
$
Vop =
3b. Calculate the company’s total value.
Total Value =
=$
3c. Calculate the estimated value of common equity.
Value of equity =
Total value
=$
–
Value of debt
$
3d. Calculate the estimated per-share stock price.
Price per share =
Value of Equity
=$
ëÊNumber of Shares
$
=
$
=
$
=
$
=
$
alue of nonoperating assets
Value of debt
Number of Shares
Assignment 5-2, Question 1
a.
Net Present Value (NPV):
NPVx =
NPVy =
-$10,000
+
-$10,000
+
$
$
Internal Rate of Return (IRR):
To solve for each project’s IRR, find the discount rates that equate each NPV to ze
IRRx
IRRy
=
=
%
%
Modified Internal Rate of Return (MIRR):
To obtain each project’s MIRR, begin by finding each project’s terminal value (TV) of ca
TVx
=
$6,500 (1.12)^3
TVy
=
$
Now, each project’s MIRR is the discount rate that equates the PV of the TV to each pr
MIRRx
MIRRy
=
=
%
%
Profitability Index (PI):
To obtain each project’s PI, divide its present value of future cash flows by its initial co
PVx
=
NPVx
+
=
$
+
PVy
=
=
NPVy
$
+
+
PIx
=
=
PVx
$
ëÊPIy
=
=
PVy
$
ëÊ+
+
$
$
+
+
$
+
$
+
$
$
=
=
es that equate each NPV to zero:
ect’s terminal value (TV) of cash inflows:
+
$
+
$
+
+
$
+
$
+
es the PV of the TV to each project’s cost, $10,000:
ure cash flows by its initial cost. The PV of future cash flows can be found from the NPV calculated earlier:
Cost of X
$10,000
=
$
Cost of Y
$
=
$
Cost of X
$
=
Cost of Y
$
=
ed earlier:
$
$
$1,000
=
$
$3,500
=
$
FIN 550 Homework Guidelines and Rubric
This course uses homework problems to demonstrate competence and allow for practice with calculations unique to finance. Complete all your calculations in
the Homework Student Workbook. Then summarize your findings and discuss the implications of the findings for the business or potential business transaction.
Follow the instructions for each question in Modules Three and Five and complete the assigned work.
Guidelines for Submission: Each homework assignment must be submitted as a 1-page Microsoft Word document with double spacing, 12-point Times New
Roman font, and one-inch margins. Any sources should be cited according to APA style. In addition, your Homework Student Workbook must be submitted to
demonstrate all calculations.
Critical Elements
Accuracy of
Calculations
Analysis: Implications
Articulation of
Response
Proficient (100%)
Includes detailed calculations, including
demonstration of each step taken to
accurately complete the problem
Includes an explanation of the
implications of the findings for the
business and/or potential business
transaction
Submission has no major errors related to
citations, grammar, spelling, syntax, or
organization
Needs Improvement (70%)
Includes calculations that are inaccurate
and/or does not include all of the steps
needed
Explains the implications of the findings,
but there are inaccuracies or explanation
is insufficient
Not Evident (0%)
Includes calculations that are inaccurate
and does not provide an explanation of
calculations
Does not include an explanation of the
findings
Value
45
Submission has major errors related to
citations, grammar, spelling, syntax, or
organization that negatively impact
readability and articulation of main ideas
Submission has critical errors related to
citations, grammar, spelling, syntax, or
organization that prevent understanding
of ideas
Earned Total
10
45
100%

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