【正文】 re, we can use the constant growth model as of the end of year 2 in order to calculate intrinsic value by adding the present value of the first two dividends plus the present value of the price of the stock at the end of year 2.The expected price 2 years from now is:P2 = D3/(k – g) = $( – ) = $The PV of this expected price is $$The PV of expected dividends in years 1 and 2 isThus the current price should be: $ + $ = $b. Expected dividend yield = D1/P0 = $$ = , or %c. The expected price one year from now is the PV at that time of P2 and D2:P1 = (D2 + P2)/ = ($ + $)/ = $The implied capital gain is(P1 – P0)/P0 = ($ – $)/$ = = %The sum of the implied capital gains yield and the expected dividend yield is equal to the market capitalization rate. This is consistent with the DDM.18.Time:0145E t$$$$D t$$$$Dividends = 0 for the next four years, so b = (100% plowback ratio).a. (Since k=ROE, knowing the plowback rate is unnecessary)b. Price should increase at a rate of 15% over the next year, so that the HPR will equal k.19. Beforetax cash flow from operations $2,100,000Depreciation 210,000Taxable Ine 1,890,000Taxes (@ 35%) 661,500Aftertax unleveraged ine 1,228,500Aftertax cash flow from operations(Aftertax unleveraged ine + depreciation) 1,438,500New investment (20% of cash flow from operations) 420,000Free cash flow(Aftertax cash flow from operations – new investment) $1,018,500The value of the firm (., debt plus equity) is:Since the value of the debt is $4 million, the value of the equity is $10,550,000.20. a. g = ROE 180。 b = 20% 180。 = 10%b.TimeEPSDividendComment0$$1g = 10%, plowback = 2EPS has grown by 10% based on last year’s earnings plowback and ROE。 this year’s earnings plowback ratio now falls to and payout ratio = 3$$EPS grows by () (15%) = 6% and payout ratio = At time 2: At time 0: c. P0 = $11 and P1 = P0(1 + g) = $(Because the market is unaware of the changed petitive situation, it believes the stock price should grow at 10% per year.)P2 = $ after the market bees aware of the changed petitive situation.P3 = $ 180。 = $ (The new growth rate is 6%.)YearReturn12 3Moral: In normal periods when there is no special information, the stock return = k = 15%. When special information arrives, all the abnormal return accrues in that period, as one would expect in an efficient market.CFA PROBLEMS1. a. This director is confused. In the context of the constant growth model[., P0 = D1/ k – g)], it is true that price is higher when dividends are higher holding everything else including dividend growth constant. But everything else will not be constant. If the firm increases the dividend payout rate, the growth rate g will fall, and stock price will not necessarily rise. In fact, if ROE k, price will fall.b. (i) An increase in dividend payout will reduce the sustainable growth rate as less funds are reinvested in the firm. The sustainable growth rate (. ROE 180。 plowback) will fall as plowback ratio falls.(ii) The increased dividend payout rate will reduce the growth rate of book value for the same reason less funds are reinvested in the firm.2. Using a twostage dividend discount model, the current value of a share of Sundanci is calculated as follows.where:E0 = $D0 = $E1 = E0 ()1 = $ 180。 = $D1 = E1 180。 = $ 180。 = $E2 = E0 ()2 = $ 180。 ()2 = $D2 = E2 180。 = $ 180。 = $E3 = E0 180。 ()2 180。 = $ 180。 ()2 180。 = $D3 = E3 180。 = $ 180。 = $3. a. Free cash flow to equity (FCFE) is defined as the cash flow remaining after meeting all financial obligations (including debt payment) and after covering capital expenditure and working capital needs. The FCFE is a measure of how much the firm can afford to pay out as dividends but, in a given year, may be more or less than the amount actually paid out.Sundanci39。s FCFE for the year 2008 is puted as follows:FCFE = Earnings + Depreciation Capital expenditures Increase in NWC = $80 million + $23 million $38 million $41 million = $24 millionFCFE per share = At this payout ratio, Sundanci39。s FCFE per share equals dividends per share.b. The FCFE model requires forecasts of FCFE for the high growth years (2012 and 2013) plus a forecast for the first year of stable growth (2014) in order to allow for an estimate of the terminal value in 2013 based on perpetual growth. Because all of the ponents of FCFE are expected to grow at the same rate, the values can be obtained by projecting the FCFE at the mon rate. (Alternatively, the ponents of FCFE can be projected and aggregated for each year.)This t