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%.
(1) What is the required rate of return on the firm’s stock? and 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.
(2) What is the firm’s current estimated intrinsic stock price?
(3) What is the stock’s expected value 1 year from now?
(4) What are the expected dividend yield, the expected capital gains yield, and the expected total return during the first year? q. Now assume that the stock is currently selling at $30.29.
(5) What is its expected rate of return? r. Now assume that Temp Force’s dividend is expected to experience nonconstant growth of 30% from Year 0 to Year 1, 25% from Year 1 to Year 2, and 15% from Year2toYear3.AfterYear3, dividends will grow at a constant rate of 6%.
(6) What is the stock’s 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)?