Mini Case

Your employer, a midsized 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 temporarily heavy workloads. Your employer is also considering the purchase of Biggerstaff & McDonald $($B&M$),$ a privately held company owned by two friends, each with $5$ million shares of stock. B&M currently has free cash flow of $$24$ million, which is expected to grow at a constant rate of $5\%.$ B&M$$s financial statements report short$-$term investments of $$100$ million, debt of $$200$ million, and preferred stock of $$50$ million. B&M$$s weighted average cost of capital $($WACC$)$ is $11\%.$ Answer the following questions:

q$.$ Now assume that the stock is currently selling at $$30\mathrm{.}29.$ What is its expected rate of return?

r$.$ Now assume that Temp Force's dividend is expected to experience nonconstant growth of $30\%$ from Year $0$ to Year $1,25\%$ from Year $1$ to Year $2,$ and $15\%$ 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 $4)?$

s$.$ What is the market multiple method of valuation? What are its strengths and weaknesses?