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Temp force company

Temp force company. Fundamental analysis case. The group. 1- Mazen Al- Kharji : 430105989 2- Ahmad Al- Kanaan : 430104146 3- Ahmad Al- Turaif : 429103531 4- Mohammed Abu Al- Naja : 430103444. A/ Describe briefly the legal rights and privileges of common stockholders?. Usually:

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Temp force company

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  1. Temp force company Fundamental analysis case

  2. The group 1- Mazen Al-Kharji: 430105989 2- Ahmad Al-Kanaan: 430104146 3- Ahmad Al-Turaif: 429103531 4- Mohammed Abu Al-Naja: 430103444

  3. A/ Describe briefly the legal rights and privileges of common stockholders? Usually: 1-they usually have the right to sell their shares. 2-they usually have the right to vote. 3-they have the right to inspect corporate books and records. 4-they have the right to receive dividends and it's a limited right.

  4. B/ 1-write out a formula that can be used to value any stock, regarding it's dividend pattern? • P= D1/(1+K)+ D2/(1+K)2+ D3/(1+K)3+..+Dn/(1+K)n

  5. 2-what is a constant growth stock? How are constant growth stocks valued? • A constant growth stock is a stock whose dividends are expected to grow at a constant rate in the foreseeable future • P= D0 (1+g)/k-g

  6. 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)? • Assume k > g. if g > k, it will give a negative stock price. • There are some cases where g experience supernormal growth which gives g > k and it cannot be forever. in the above equation, it assumes that g is constant and remain indefinitely, so , g cannot be more than k in the long run.

  7. 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 firms stock? • The formula to solve the question: k= RFR+ (Rm-RFR) β = 7% + (5%-7%) 1.2 =4.6%

  8. 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 firms expected dividend stream over the next 3 years? The formula to solve the question: Dn=Dn-1(1+g) D0= 2.00 $ , g = 6% D1= 2 (1+0.06) = 2.12$ Year 1 D2= 2.12 (1+0.06) = 2.2472$ Year 2 D3= 2.247 (1+0.06) = 2.38182$ Year 3

  9. 2-what is the firms current intrinsic stock price? The formula to solve the question: P= D1/(k-g) P= 2.12/(0.13-0.06) = 30.2857$ 3-what is the stock expected value 1 year from now? We will use the same formula in the last question: P= D1/(k-g) P= 2.2472/(0.13-0.06) = 32.10285714$

  10. 4-what are the expected dividend yield, the expected capital gain yield, and the expected total return during the first year? Expected Dividend yield=D1/pt-1 = 2.12/30.28 = 7% Capital gain yield= pt-pt-1/pt-1 = 32.10-30.28/30.28=6% Expected total return= 7%+6%=13%

  11. E/ now assume that the stock is currently selling at $30.29, what is it's expected rate of return? To calculate the required rate of return we will apply this formula: P=D1/(k-g) Then, K=(D1/p)+g = (2.12/30.29)+6% = 13%

  12. F/ what would the stock price be if the dividends were expected to have zerogrowth? • We will consider "g" as 0 in the formula as following , the formula to solve the question: P= D0(1+0)/(k-0) P= 2*1/0.13-0 = 15.38$

  13. g/ Now assume that Temp Forces dividend is expected to experience supernormal growth of 30% from year 0 to year 1, 20% from year 1 to year 2, and 10% from year 2 to year 3. After year 3, dividends will grow at a constant rate of 6%. What is the stocks 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 )?

  14. 1-To solve this question we need to divide it to two parts first, the super-normal growth period. then, the constant growth period as following: g1=30% , g2=20% , g3=10% , gconstant=6%, D= 2 $ , K= 13% for the first three years we will use this formula: P=D(1+g)/(1+k) Year 1= 2(1+0.3)/(1+0.13)= 2.301 $ Year 2= 2.301(1+0.2)/(1+0.13)= 2.4435 $ Year 3= 2.4435(1+0.1)/(1+0.13)= 2.3786 $ after the third year the growth will be constant at 6% so the formula will be: P=D0(1+g)/(k-g) Year 4= 2.3786(1+0.06)/(0.13-0.06)= 36.0188 $ so the sock value will be: P=2.301+2.4435+2.3786+36.0188= 43.1419 $

  15. First Year 2-To calculate the Dividend yield for year1 we have to use the following formula: DY=D1/P0 DY=2(1+0.30)/ 43.1419 = 0.060266= 6.0266 % To calculate the Capital Gain Yield for year 1 we can choose one of two ways: 1- CGY= Pt-Pt-1/Pt-1 Or, 2-CGY= Expected Total Return - Dividend Yield To simplify the calculation we will use the second one because we calculated the Expected Total Return in Question E part 4 as following: CGY= 0.13 – 0.060266 = 0.069734 = 6.9734%

  16. Year 4 3-To calculate the Dividend yield for year 4 we have to use the following formula: DY=D4/P0 DY= 2.3786 / 43.1419 = 0.05513 = 5.513% To calculate the Capital Gain Yield for year 4 we can choose one of two ways: 1- CGY= Pt-Pt-1/Pt-1 Or, 2-CGY= Expected Total Return - Dividend Yield To simplify the calculation we will use the second one because we calculated the Expected Total Return in Question E part 4 as following: CGY= 0.13 – 0.05513 = 0.07487 = 7.487%

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