See 8508882.xls

Can I get help for the second problem on the spreadsheet please.

A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 B Chapter: 7 C D E F G H I Hamilton Landscaping's dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50 and its stock has a required return of 11%. a. What is Hamilton's estimated stock price today? D0 rs g0,1 g1,2 gL $2.50 11.0% 30% 15% 5% g Year Dividend Short-run g; for Year 1 only. Short-run g; for Year 2 only. Long-run g; for Year 3 and all following years. 30% 0 15% 1 $3.25 PV of dividends and PV of horizon value $2.9279 3.0334 $53.0852 5% 2 3.7375 5% 3 3.92438 = D2 (1+g) = D3 65.4063 = Horizon value = P2 = 6.0% = rs - gL $59.0465 = P0 a. What is Hamilton's estimated stock price for Year 1? P1 P1 = P1 = P2 = $65.406 + (1 + rs) + D2 $3.738 1.11 $62.29 b. If you bought the stock at Year 0, what your expected dividend yield and capital gains for the upcoming year? 1. Find the expected dividend yield. Dividend yield = Dividend yield = Dividend yield = D1 $3.250 5.50% / / P0 $59.047 2. Find the expected capital gains yield. Use the estimated price for Year 1, P1, to find the expected gain. Cap. Gain yield= Cap. Gain yield= Cap. Gain yield= (P1 - P0) $3.25 5.50% / / P0 $59.0465 Alternatively, the capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. Cap. Gain yield= Cap. Gain yield= Cap. Gain yield= Expected return 11.0% 5.50% - - Dividend yield 5.50% c. What your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren't these the same as for the first year? 1. Find the expected dividend yield. Dividend yield = Dividend yield = Dividend yield = D2 $3.738 6.00% / / P1 $62.292 2. Find the expected capital gains yield. Use the estimated price for Year 2, P2, to find the expected gain. Cap. Gain yield= Cap. Gain yield= Cap. Gain yield= (P2 - P1) $3.11 5.00% / / P1 $62.2917 Alternatively, the capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. Cap. Gain yield= Cap. Gain yield= Cap. Gain yield= Expected return 11.0% 5.00% - - Dividend yield 6.00% For any query, contact nainiavi@gmail.com J Chapter: 7 Selected data for the Derby Corporation are shown below. Use the data to answer the following questions. INPUTS (In millions) Free cash flow Marketable Securities Notes payable Longterm bonds Preferred stock WACC Number of shares of stock Current 0 $40 $100 $300 $50 9.00% 40 Year 1 $20.0 Projected 2 $20.0 3 $80.0 4 $84.0 a. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year4 free cash flow). Current 0 Free cash flow Longterm constant growth in FCF Horizon value 1 $20.0 Projected 2 $20.0 3 4 $80.0 $84.0 b. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year0 value of operations. PV of horizon value PV of FCF Value of operations (PV of FCF + HV) c. Calculate the estimated Year0 price per share of common equity. Value of operations Plus value of narketable securities Total value of company Less value of debt Less value of preferred stock Estimated value of common equity Divided by number of shares Price per share