B D E 1 Nonconstant Growth and Corporate Valuation 2 3 Last dividend, D 4 Required rate of return, rs 5 Supernormal growth rate, gs 6 Normal growth rate, gn 7 Period of superormal growth $1.30 11% 20% 7% 2 years 8 9 a. Finding TTC's stock worth today, its expected dividend, and capital gains yields Year Dividend Formulas 10 11 1 #N/A #N/A 12 2 #N/A #N/A #N/A #N/A 13 14 Horizon value at the end of year 2 15 Stock price 16 Dividend yield during year 1 17 Capital gains yield during year 1 18 19 b. Finding the price, dividend yield, and capital gains yield 20 Period of superormal growth 21 Year Dividend 22 1 23 2 5 years 24 3 #N/A #N/A #N/A #N/A #N/A 25 4 26 5 27 28 Horizon value at the end of year 5 #N/A 29 Stock price #N/A 30 Dividend yield during year 1 #N/A 31 Capital gains yield during year 1 #N/A 32 33 c. Finding TTC's dividend and capital gains yields once its period of supernormal growth ends 34 Dividend yield #N/A 35 Capital gains yield #N/A d. Finding the stock value based on the corporate valuation model approach Year FCF (in millions) 1 $4.9 2. $14.5 3 $22.9 4 $49.4 5 $63.3 6 $83.2 7 $106.4 8 $134.1 9 $146.3 10 $165.1 WACC Growth rate after the 10th year, 9n Number of common stock outstanding Number of preferred stock Value of nonoperating assets Market value of debt 10% 7% 20 millions 0 millions $0 millions $1,300 millions HV of FCF at the end of year 10 millions #N/A PV of FCF 1-10 at year 0 PV of HV at year 0 Market value of operations Market value of nonoperating assets Total corporate value Less: market value of debt Intrinsic value of common equity millions millions millions millions millions millions millions #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intrinsic value per share #N/A Excel Activity: Nonconstant Growth and Corporate Valuation 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, then decline to 9n = 7%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Download spreadsheet Nonconstant Growth and Corporate Valuation-fff84e.xlsx a. If Do = $1.30 and rs = 11%, what is TTC's stock worth today? Round your answer to the nearest cent. $ per share What are its expected dividend, and capital gains yields at this time, that is, during Year 1? Round your answers to two decimal places. Dividend yield: % Capital gains yield: % b. Now assume that TTC's period of supernormal growth is to last for 5 years rather than 2 years. How would this affect the price, dividend yield, and capital gains yield? Round your answer for the price to the nearest cent and for the dividend yield and capital gains yield to two decimal places. The price will to $ per share. The dividend yield will to %. The capital gains yield will V to %. 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.) Round your answers to two decimal places. Dividend yield: % Capital gains yield: % 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 (in millions): Year 1 2 3 4 5 6 7 8 9 10 FCF $4.9 $14.5 $22.9 $49.4 $63.3 $83.2 $106.4 $134.1 $146.3 $165.1 After the 10th year, TTC's financial planners anticipate that its free cash flow will grow at a constant rate of 7%. Also, the firm concluded that the new product caused the WACC to fall to 10%. The market value of TTC's debt is $1,300 million, it uses no preferred stock, it has zero nonoperating assets; and there are 20 million of common stock outstanding. Use the corporate valuation model to value the stock. Round your answer to the nearest cent. $ per share