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Mini case 4

The purpose of this assignment is to explain core concepts related to stocks and to analyze the ethical implications of decisions and promote ethical standards within organizations.

Read the Chapter 7 Mini Case on pages 322-323 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a through d.

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.

APA format is not required, but solid academic writing is expected.

Your employer, a mid-sized human resources management company, is considering expansion in to 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 Bigger staff & Bigger staff (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 $24million, which is expected to grow at a constant rate of 5%. B&B’s financial statements report marketable securities of $100million, 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 its dividend pattern. (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 stocks have expected g>rs in the short run (i.e., for the next few years)? In the long run (i.e., forever)?

c. Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firm’s stock?

d. Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) 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 1 year from now?

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

Mini case 3

The purpose of this assignment is to explain core concepts related to fixed income securities.

Read the Chapter 5 Mini Case on page 230 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a through f.

APA format is not required, but solid academic writing is expected.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and co-directors of the company’s pension fund management division. An important new client, the North-Western Municipal Alliance, has requested that Mutual of Seattle present a investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions.

a. What are the key features of a bond?

b. What are call provisions and sinking fund provisions? Do these provisions make bonds more or less risky?

c. How does one determine the value of any asset whose value is based on expected future cash flows?

d. How is the value of a bond determined? What is the value of a 10-year, $1,000 par value bond with a 10% annual coupon if its required rate of return is 10%?

e. (1) what would be the value of the bond described in part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? (2

(2) What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond?

(3) What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT,I/YR,FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)

f. (1) what is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tell you about the relationship between rd and the bond’s coupon rate?

(2) What are the total return, the current yield, and the capital gains yield for the discount bond? (Assume the bond is held to maturity and the company does not default on the bond.)