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&Bs financial statements

report marketable securities of $100 million, debt of $200 million, and preferred stock of

$50 million. B&Bs 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 dividendpattern. (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 stockshave expected g > rs in the short run (i.e., for the next few years)? In the long run (i.e., forever)?