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 processing operators and computer programmers to business with temporary heavy workloads. Your employer is also considering the purchase of a Biggerstaff and 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 the dividends patterns.
(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 r? Will many stocks have expected g>r, in the short run? In the long run?
C. Assume that temp force has a beta coefficient of 1.2, that the risk free rate is 7.0% and that the market risk premium is 5% what tis the required rate of return on the firm’s stock
D. Assume that temp force is a constant growth company whose last dividend 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 one year from now?
3. What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year?
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.