Instruction for case study

Instruction: please read carefully

The purposes of the excel cases are to get you familiar with financial functions in Excel and to
help you understand more about the lectures with practice problems. Therefore, it is expected
that you use as many Excel functions as you can, try to get Excel to do all calculations
You can either do the case individually or work in a group of no more than 2 people.
You should submit a hard copy of the case and send me the excel file via email.
Late cases will not be graded.
You are required to fill out the yellow blank space in the excel cases.

Taussig Technologies Corporation 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.
Answers the questions in the case.

Problem a

Part 1

This is very similar to the examples in the lecture note. First, you calculate the expected dividends
for year 1, 2 with the growth rate of dividend is 20%. After year 2, the growth rate is 6%. Therefore,
you should be able to calculate D3 = D2(1+0.06).

Once you have the dividend D1, D2, discount them back to present using the discount rate 10%.
The reason you calculate D3 is to compute P2 by the formula

D3
P2 = (1)
rS - g L

Once you get P2, you discount it back to the present using the discount rate Rs = 10%

The present value of the stock Po = sum of all present values of D1, D2 and P2

Part 2 and 3

You calculate the dividend yield and capital gain following the formula given in the case.

Problem b

Similar to problem a, except now you have the dividend growth rate of 20% for the first 5 years.
After that, the growth rate is still 6%. So what you should do is to calculate D1, D2, D3, D4, D5,
and discount them back. The discount rate is still 10%

You calculate D6 = D5*(1+0.06)

 D6
And then use the formula P5 = to get P5.
rS - g L

Sum all the present value of D1, D2, D3, D4, D5 and P5 to get Po

Part 2, 3 are similar to problem a

Problem c

Dividend yield = D6/P5 (dividend at year 6 divided by price at year 5)

Capital gain calculated as the formula given