1. Tubby Toys estimates that its new line of rubber ducks will generate sales of $6.70 million, operating costs of $3.70 million, and a depreciation expense of $0.70 million. If the tax rate is 40%, what is the firm’s operating cash flow?
2. Capitol Carriers just paid a dividend of $0.65 per share (think yesterday). The dividend is set to grow 11 percent for the next five years and at 7 percent after that. The expected return is 17 percent.
(a) What is the current share price (P0)?
(b) What is the share price and dividend in year six (P6, D6)?