Subject: Business    / Finance

Benchmark – Mini Case 4:

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.

MINI CASE Your employer, a mid-sized human resources management company, is considering
expansion into related ?elds, including the acquisition of Temp Force Company, an
employment agency that supplies Wrd processor operators and computer programmers
to businesses with temporary heavy workloads. Your employer is also considering the
purchase of a 3iggerstaff & 3iggerstaff (3&3), a privately held company owned by two
brothers, each with 5 million shares of stock 3&3 currently has free cash ?ow of $24
million, which is expected to grow at a constant rate of 5%. 3&3’s ?nancial statements
report marketable securities of $100 million, debt of $200 million, and preferred stock of
$50 million. 3&B’s WACC is 11%. Answer the following questions. a. b. Describe brie?y the legal rights and privileges of common stockholders. (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 r5? Will many stocks
have expected g > r, in the short run (is, for the next few years)? In the long run
(i.e., forever)?l Assume that Temp Force has a beta coefficient of 1.2, that the risk-?ee 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 ?rm’s stock? Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid yesterday) was $2.00 and whose dividend is upected to grow inde?nitely at a 6% rate. (1) What is the ?rm’s current estimated intrinsic stock price? (2] What is the stocks 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 ?rst year?

Mini Case 3:

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.

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 an 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 ofthe bond described in part d if, just after it had been
issued, the expected in?ation rate rose by 3 percentage points, causing investors
to require a 13% return? Would we now have a discount or a premium bond? (2] What would happen to the bonds value if in?ation fell and rd declined to 3’96?
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 1’96? (Him: With a ?nancial
calculator, enter PMI’, UY’R, PV, and N, and then change N to see what happens
to the W 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 $337.00? 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 bonds coupon rate? (2) What are the total return, the current yield, and the capital gains yield for the
discount bond?