Presentation on theme: "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."— Presentation transcript:
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: 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.
B/ 1-write out a formula that can be used to value any stock, regarding it's dividend pattern? P= D 1 /(1+K)+ D 2 /(1+K) 2 + D 3 /(1+K) 3 +..+D n /(1+K) n
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= D 0 (1+g)/k-g
3-what happens if a company has 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)? 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.
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%
D/ Assume that Temp Force is a constant growth company whose last dividend (D 0,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 : D n =D n-1 (1+g) D 0 = 2.00 $, g = 6% D 1 = 2 (1+0.06) = 2.12$ Year 1 D 2 = 2.12 (1+0.06) = 2.2472$ Year 2 D 3 = 2.247 (1+0.06) = 2.38182$ Year 3
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= D 1 /(k-g) P= 2.2472/(0.13-0.06) = 32.10285714$
4-what are the expected dividend yield, the expected capital gain yield, and the expected total return during the first year? Expected Dividend yield = D 1 /p t-1 = 2.12/30.28 = 7% Capital gain yield = p t -p t-1 /p t-1 = 32.10-30.28/30.28=6% Expected total return = 7%+6%=13%
E/ now assume that the stock is currently selling at $30.29, what is it's expected rate of return? To calculate the required rate of return we will apply this formula: P=D 1 /(k-g) Then, K=(D 1 /p)+g = (2.12/30.29)+6% = 13%
F/ what would the stock price be if the dividends were expected to have zero growth? We will consider "g" as 0 in the formula as following, the formula to solve the question: P= D 0 (1+0)/(k-0) P= 2*1/0.13-0 = 15.38$
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 )?
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=D 0 (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 $
First Year 2-To calculate the Dividend yield for year1 we have to use the following formula: DY=D 1 /P 0 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= P t -P t-1 /P t-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%
Year 4 3-To calculate the Dividend yield for year 4 we have to use the following formula: DY=D 4 /P 0 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= P t -P t-1 /P t-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%