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You see a fast growing company that is estimated to have dividend growth of 20%, 18%, and 16% over each of the next three years (20% in year 1, 18% in year 2, 16% in year 3). The company paid a dividend of $1.28 per share over the past twelve months. Dividends are expected to grow at a constant rate of 3.0% per year beginning in year 4 to perpetuity. The risk-free rate of return is 4% and the market risk premium (expected return on the S&P 500 minus the risk-free rate of return) is 6%. The stock has a beta of 1.25 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model. Can anyone show their work for this?

Can someone show their work for this?

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Bunny Greenfelder
Bunny GreenfelderLv2
30 Sep 2019

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Need Explanation andDetail in Excel Format:


1 The corporate treasurer of Ajax Company expects the company togrow at 4% in the future, and debt securities
at 6% interest (tax rate = 30%) to be a cheaper option to financethe growth. The current market price per share
of its common stock is $39, and the expected dividend in one yearis $1.50 per share. Calculate the cost of the company's
retained earnings and check if the treasurer's assumption iscorrect.

2 The risk-free rate on 10-year U.S. Treasury bills is 3% and theexpected rate of return on the overall stock market is 11%.
The company has a beta of 1.6. What is the cost of equity?

3 A company has a capital structure as follows:
Total Assets $600,000
Debt $300,000
Preferred Stock $100,000
Common Equity $200,000
What would be the minimum expected return from a new capitalinvestment project to satisfy the suppliers of the capital?
Assume the applicable tax rate is 40%, interest on debt is 11%,flotation cost per share of preferred stock is $0.75, and
flotation cost per share of common stock is $4. The preferred andcommon stocks are selling in the market for $26 and $143
a share respectively, and they are expected to pay a dividend of $2and $7, repectively, in one year. The company's dividends
are expected to grow at 13% per year. The firm would like tomaintain the existing capital structure to finance the new
project.

4 Required rate of return is 10%.
Net Cash Flow
Year Project A Project B
0 -$2,000 -$2,500
1 $900 $1,500
2 $1,100 $1,300
3 $1,300 $800
a) Calculate the payback period for each project.
b) Calculate the net present value for each project.

c) Which project do you think will be approved, if only one projectcan be approved? Why?
d) What if the required rate of return was 20%?




5 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 7%. Interest is paid annually.
10 years of the life of the bond remain. The current market priceof the bond is $872. To the nearest whole percent,
what is the yield to maturity (YTM) of the bond today?



6 Ajax Manufacturing dividend is $8 per share of common stock inone year. The dividend growth rate is 3%.
Required rate of return is 14%.

a) What is the current market price per share?
b) What is the annual rate of return if you purchase the stock at$65?


7. A common stock sells for $82 per share, has a growth rate of 7%and a dividend that was just paid of $3.82. What is the
annual percent yield per share?

8 A corporate bond has a face value of $1,000 and an annual couponinterest rate of 6%. Interest is paid annually.
12 years of the life of the bond remain. The current market priceof the bond is $1,027, and it will mature at $1,100.
To the nearest whole percent, what is the yield to maturity (YTM)of the bond today?


Sean John is considering a leveraged recapitalization and wantsto know the value of the firm subsequent to the recap. After therecapitalization they will have $41.6 million in perpetual parvalue debt with a 6% coupon.They are currently forecasted toproduce free cash flows of $3.1 million, $7.5 million, and $13.5million in each of the next three years. After year three, theunlevered cash flows are expected to grow at a constant rate of 3%per year. The marginal corporate tax rate is 40%. Sean John’sclosest competitor, a pure-play firm in the same business withsimilar risk, profitability, and growth prospects, has adebt-to-equity ratio of 0.5 and an equity beta of 1.25. Ten-yeartreasuries currently yield 2.3% and the expected return on theS&P 500 is 10.0% per annum. Using the information aboveregarding Sean John and if you discount the interest tax shields atthe unlevered cost of equity, what is the value of the enterprise(market value of assets) using the APV method? Enter your responsein millions, rounded to two decimal places.

3.

Your firm needs a machine which costs $260,000, and requires$41,000 in maintenance for each year of its 5 year life. After 3years, this machine will be replaced. The machine falls into theMACRS 5-year class life category. Assume a tax rate of 30% and adiscount rate of 15%. What is the depreciation tax shield for thisproject in year 5?

rev: 06_17_2014_QC_49608

$49,920

$7,488.00

$14,976.00

$34,944

4.

Scribble, Inc. has sales of $92,000 and cost of goods sold of$76,000. The firm had a beginning inventory of $22,000 and anending inventory of $24,000. What is the length of the days' salesin inventory? (Round your answer to 2 decimal places.)

95.22 days

115.26 days

105.66 days

87.28 days

5.

Buying Stock with Commission At your discountbrokerage firm, it costs $10.55 per stock trade. How much money doyou need to buy 300 shares of Ralph Lauren (RL), which trades at$85.25?

$25,564.00

$28,740.00

$25,585.55

$25,564.45

6.

Expected Return If a company's current stockprice is $26.90 and it is likely to pay a $2.65 dividend next year.Since analysts estimate the company will have a 15% growth rate,what is its expected return?

3.05%

15.00%

9.85%

24.85%

7. IVY has preferred stock selling for 97.1 percent of par thatpays a 7.9 percent annual coupon. What would be IVY's componentcost of preferred stock?

7.90%

7.67%

8.14%

22.91%

8.

Buying Stock with Commission At your discountbrokerage firm, it costs $11.50 per stock trade. How much money doyou need to buy 100 shares of International Business Machines(IBM), which trades at $96.32?

$8,482.00

$9,643.50

$10,782.00

$9,620.50

9.

Rose Resources faces a smooth annual demand for cash of $10.0million; incurs transaction costs of $325 every time they sellmarketable securities, and can earn 3.9 percent on their marketablesecurities. What will be their optimal cash replenishment level?(Round your answer to 2 decimal places.)

$28,867.51

$408,248.29

$288,675.13

$40,824.83

10. TJ Co stock has a beta of 1.63, the current risk-free rateis 5.93 percent, and the expected return on the market is 14.18percent. What is TJ Co's cost of equity?

29.04%

32.78%

19.38%

21.74%

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