Bob and Doug McKenzie are senior vice presidents of Elsinore Brewery. They are co-directors of the company’s pension fund management division, with Bob having responsibility for fixedincome securities (primarily bonds) and Doug being responsible for equity investments. A major new client, the Yakima Valley Brewery, has requested that Elsinore Brewery present an investment seminar to the executive officers of Yakima Valley brewery; and Bob and Doug, who will make the actual presentation, have asked you to help them.
To illustrate the common stock valuation process, Bob and Doug have asked you to analyze the Grandview Brewery Supply Inc., a supply company that supplies brewery equipment, yeast, and hops to breweries around the world. You are asked to answer the following questions:
1. Briefly describe the legal rights and privileges of common stockholders. 2. Answer the following: a. Write a formula that can be used to value any stock, regardless of its dividend pattern. b. What is a constant growth stock? How are constant growth stocks valued? c. What are the implications if a company forecasts 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)?