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QUESTION Robert Balik and Carol Kiefer are senior vice presidents of the Mutual of Chicago Insurance Company. They are codirectors of the company’s pension fund management division, with Balik having responsibility for fixed-income securities (primarily bonds) and Kiefer being responsible for equity investments. A major new client, the California League of Cities, has requested that Mutual of Chicago present an investment seminar to the mayors of the represented cities; and Balik and Kiefer, who will make the actual presentation, have asked you to help them. To illustrate the common stock valuation process, Balik and Kiefer have asked you to analyze the Bon Temps 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. b. 1. Write 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 are the implications if a company forecasts a constant g that exceeds its $r_{s}$? Will many stocks have expected $g>r_{s}$ in the short run (i.e., for the next few years)? In the long run (i.e., forever)? c. Assume that Bon Temps has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 3%, and that the required rate of return on the market is 8%. What is Bon Temps’s required rate of return? d. Assume that Bon Temps is a constant growth company whose last dividend ($\mathrm{D}_{0}$, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a 4% rate. 1. What is the firm’s expected dividend stream over the next 3 years? 2. What is its current stock price? 3. What is the stock’s expected value 1 year from now? 4. What are the expected dividend yield, capital gains yield, and total return during the first year? e. Now assume that the stock is currently selling at$40.00. What is its expected rate of return? f. What would the stock price be if its dividends were expected to have zero growth? g. Now assume that Bon Temps’s dividend is expected to grow 30% the first year, 20% the second year, 10% the third year, and return to its long-run constant growth rate of 4%. What is the stock’s value under these conditions? What are its expected dividend and capital gains yields in Year 1? Year 4? h. Suppose Bon Temps is expected to experience zero growth during the first 3 years and then resume its steady-state growth of 4% in the fourth year. What would be its value then? What would be its expected dividend and capital gains yields in Year 1? In Year 4? i. Finally, assume that Bon Temps’s earnings and dividends are expected to decline at a constant rate of 4% per year, that is, g=-4%. Why would anyone be willing to buy such a stock, and at what price should it sell? What would be its dividend and capital gains yields in each year? j. Suppose Bon Temps embarked on an aggressive expansion that requires additional capital. Management decided to finance the expansion by borrowing $40 million and by halting dividend payments to increase retained earnings. Its WACC is now 7%, and the projected free cash flows for the next three years are –$5 million, $10 million, and$20 million. After Year 3, free cash flow is projected to grow at a constant 5%. What is Bon Temps’s total value? If it has 10 million shares of stock and $40 million of debt and preferred stock combined, what is the price per share? k. Suppose Bon Temps decided to issue preferred stock that would pay an annual dividend of$5.00 and that the issue price was $100.00 per share. What would be the stock’s expected return? Would the expected rate of return be the same if the preferred was a perpetual issue or if it had a 20-year maturity? Verified answer Other Quizlet setsRelated questionsWhat are some of the advantages of international operations?Before you pass on expanding into foreign markets, consider some of these potential advantages of international trade.. Increased revenues. ... . Decreased competition. ... . Longer product lifespan. ... . Easier cash-flow management. ... . Better risk management. ... . Benefiting from currency exchange. ... . Access to export financing. ... . Disposal of surplus goods.. Which of the following is the greatest advantage of international operations?Perhaps the greatest advantage of international operations to a firm is the ability to gain new customers for its products and services, thus increasing revenues. Although growth in revenues and profits is a common expectation of shareholders, it is not a measure of organizational success.
Which of the following is the benefit of Internationalisation strategy?One of the significant advantages of international trade is market diversification. Becoming less dependent on a single market can help you avoid risks in your core market. Companies would have the opportunity to increase their brand awareness in a marketplace where their competitors have not yet entered.
Which is considered as a disadvantage of international operations?Cultural Differences
One of the major disadvantages of international trade is that, many times, cultural differences are never documented. There are unwritten rules of commerce in the country that are hard to uncover and can be even more difficult to solve.
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Which of the following is a potential advantage of conducting international operations group of answer choices?
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