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 value1 year from now?
(3) What are the expected dividend yield, the expected
capital
gains yield, and the expected total return during
the first year?
