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=+/YearDividendPV of dividendsgLgSShort-run g; for Years 1-2 only.Long-run g; for Year 3 and all following years.Part 2. Finding the expected dividend yield.Dividend yield =Part 3. Finding the expected capital gains yield.Cap. Gain yield=Expected returnDividend yieldShort-run g; for Years 1-5 only.Long-run g; for Year 6 and all following years.1. Find the price today.= Terminal value = P2 = = P0 2. Find the expected dividend yield.3. Find the expected capital gains yield.P01. Find the price today.Recall that the expected dividend yield is equal to the next expected annual dividend divided by the price at the beginning of the period.The capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return.Upon reflection, we see that these calculations were unnecessary because the constant growth assumption holds that the long-term growth rate is the dividend growth rate and the capital gains yield, hence we could have simply subtracted the long-run growth rate from the required return to find the dividend yield.Rework Problem 7-19. Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same growth rate is expected to last for another 2 years (g1 = g2 = 20%).D0rsgs–D1= rs – gLAlternatively, we can recognize that the capital gains yield measures capital appreciation, hence solve for the price in one year, then divide the change in price from today to one year from now by the current price. To find the price one year from now, we will have to find the present values of the terminal value and second year dividend to time period one.P1P2D2(1 + rs)(P1 – P0)b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect its price, dividend yield, and capital gains yield?c. What will TTC's dividend yield and capital gains yield be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth, and the calculations are very easy.)We used the 5-year supernormal growth scenario for this calculation, but ultimately it does not matter which example you use, as they both yield the same result.Dn+1Pn= D3= D6Horizon value = P5 =Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted.Chapter 7. Ch 07 P20 Build a Modela. If D0 = $1.60, rs = 10%, and gn = 5%, what is TTC's stock worth today? What are its expected dividend yield and capital gains yield at this time?Spring 1, 2013

DeVry Chicago FI504 ACCOUNTING P08 Build a Model and P07 Build a Model

Question # 00002291 Posted By: neil2103 Updated on: 10/14/2013 08:41 AM Due on: 10/30/2013
Subject Finance Topic Finance Tutorials:
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DeVry Chicago FI504 ACCOUNTING P08 Build a Model and P07 Build a Model

Chapter 8 Ch08 P08 Build a Model


You have been given the following information on a call option on the stock of Puckett Industries:

P = $65 X = $70
t = 0.5 rRF = 4%
s = 50.00%

a. Using the Black-Scholes Option Pricing Model, what is the value of the call option?

First, we will use formulas from the text to solve for d1 and d2.
Hint: use the NORMSDIST function.
(d1) = N(d1) =

(d2) = N(d2) =

Using the formula for option value and the values of N(d) from above, we can find the call option value.

VC =


b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is the value of the put?


Put option using Black-Scholes modified formula =

Put option using put-call parity =


P07 Build a Model

Supernormal Growth Stock Valuation

Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same supernormal growth rate is expected to last for another 2 years (g1 = g2 = 20%).


a. If D0 = $ 1.60 and rs = 10%, what is TTC’s stock worth today? What are its expected dividend and capital gains yields at this time, that is, during Year 1?
b. Now assume that TTC’s period of supernormal growth is to last for 5 years rather than 2 years. Calculate the price, dividend yield, and capital gains yield for Year 1.
c. What will TTC’s dividend and capital gains yields be once its period of supernormal growth ends? (Hint: These values will be the same regardless of whether you examine the case of 2 or 5 years of supernormal growth; the calculations are very easy.)
d. TTC recently introduced a new line of products that has been wildly successful. On the basis of this success and anticipated future success, the following free cash flows were projected:
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  1. Tutorial # 00002110 Posted By: neil2103 Posted on: 10/14/2013 09:57 AM
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