Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i need help with number 5,6, and 7 please show all steps and calculations !! Stock Valuation Sam Strother and Shawna Tibbs are senior vice

i need help with number 5,6, and 7 please show all steps and calculations !!
image text in transcribed
image text in transcribed
Stock Valuation Sam Strother and Shawna Tibbs are senior vice presidents of Mutual of Seattle. They are co-directors of the company's pension-fund management division, with Strother having responsibility for fixed income securities (primarily bonds) and Tibbs responsible for equity investments. A major new client, the Northwestern Municipal Alliance, has requested that Mutual of Seattle present an investment seminar to the mayors of the cities in the association, and Strother and Tibbs, who will make the actual presentation, have asked you to help them. To illustrate the common stock valuation process, Strother and Tibbs have asked you to analyze the Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporarily heavy workloads. You are expected to answer the following questions: 1. (a) Write out a formula that can be used to value any stock, regardless of its dividend pattern (b) What is a constant growth stock? How are constant growth stocks valued? (c) What happens if a company has a constant g that exceeds its r.? 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)? 2. Assume that Temp Force is a constant growth company whose last dividend (Do, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a 6% rate. Assuming a 13% required rate of return on Temp Force's stock: (a) What is the firm's current intrinsic stock price? (b) What is the stock's expected value 1 year from now? (c) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year? 3. Now assume that the stock is currently selling at $30.29. What is its expected rate of return? 4. What would the stock price be if the dividends were expected to have zero growth? 5. Now assume that Temp Force's dividend is expected to experience supernormal growth of 30% from Year Oto Year 1, 20% from Year 1 to Year 2, and 10% from Year 2 to Year 3. After Year 3, dividends will grow at a constant rate of 6%. What is the stock's intrinsic value under these conditions? What are the expected dividend yield and capital gains yield during the first-year? What are the expected dividend yield and capital gains yield during the fourth year from year 3 to year 4)? 6. Is the stock price based more on long-term or short-term expectations? Answer this by finding the percentage of Temp Force's current stock price that is based on dividends expected more than 3 years in the future. I 7. Suppose Temp Force is expected to experience zero growth during the first 3 years and then to resume its steady-state growth of 6% in the fourth year. What is the stock's intrinsic value now? What is its expected dividend yield and its capital gains yield in Year 1? In Year 4

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Banking On Freedom Black Women In U.S. Finance Before The New Deal

Authors: Shennette Garrett-Scott

1st Edition

0231183917, 978-0231183918

More Books

Students also viewed these Finance questions

Question

List out some inventory management techniques.

Answered: 1 week ago