Sam Forbes and Jenny Hewes are senior vice-presidents of the First Creek Investment Council . They are co-directors of the company's pension fund management division, with Sam having responsibility for fixed income securities (primarily bonds) and Jneey being responsible for equity investments. A major new client has requested that council present an investment seminar to Executive Committee, and Forbes and Hewes, who will make the actual presentation, have asked you, a recent UCW graduate to help them.

To illustrate the common stock valuation process, Sam and Jenny 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 to answer the following questions.

a. Describe briefly the legal rights and privileges of common stockholders. (1 mark)

b. 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 5 percent rate. (2 marks)

(1.) What is the firms expected dividend stream over the next 3 years?

(2.) What is the firms current stock price?

(3.) What is the stock's expected value 1 year from now?

(4.) What are the expected dividend yield, the capital gains yield, and the total return during the first year?

c. Now assume that the stock is currently selling at $43.75. What is the expected rate of return on the stock? (1mark)