Mini Case 4 CH7 pg 322-323

The purpose of this assignment is to explain core concepts

related to stocks and to analyze the ethical implications of

decisions and promote ethical standards within organizations.

Read the Chapter 7 Mini Case on pages 322-323 in Financial

Management: Theory and Practice. Using complete sentences

and academic vocabulary, please answer questions a through d.

Using the mini case information, write a 250-500 word report

presenting potential ethical issues that may arise from expanding

into other related fields. In your discussion, proactively

strategize about possible expansion by explaining opportunities

to promote ethical standards within your organization.

APA format is not required, but solid academic writing is

expected.

This assignment uses a rubric.

Your employer, a mid-sized human resources management

company, is considering expansion into related fields, including

the acquisition of Temp Force Company, an employment agency

that supplies word processor operators and computer

programmers to businesses with temporary heavy workloads.

Your employer is also considering the purchase of a Biggerstaff&

Biggerstaff (B&B), a privately held company owned by two

brothers, each with 5 million shares of stock. B&B currently has

free cash flow of $24 million, which is expected to grow at a

constant rate of 5%. B&B’s financial statements

report marketable securities of $100 million, debt of $200 million,

and preferred stock of $50 million. B&B’s WACC is 11%. Answer

the following questions.

a. Describe briefly the legal rights and privileges of common

stockholders.

b. (1) Write out a formula that can be used to value any stock,

regardless of its dividend pattern. (2) What is a constant growth stock? How are constant growth

stocks valued?

(3) What happens if a company has a constant g that exceeds its

rs? Will many stocks have expected g > rs in the short run (i.e.,

for the next few years)? In the long run (i.e., forever)?

c. Assume that Temp Force has a beta coefficient of 1.2, that the

risk-free rate (the yield on T-bonds) is 7.0%, and that the market

risk premium is 5%. What is the required rate of return on the

firm’s stock?

d. Assume that Temp Force is a constant growth company whose

last dividend (D0, which was paid yesterday) was $2.00 and

whose dividend is expected to grow indefinitely at a 6% rate.

(1) What is the firm’s current estimated intrinsic stock price?

(2) What is the stock’s expected value 1 year from now?

(3) What are the expected dividend yield, the expected capital

gains yield, and the expected total return during the first year?