Your employer, a mid-sized human resources management company,is considering expansion into related fields, including theacquisition of Temp Force Company, an employment agency thatsupplies word processor operators and computer programmers tobusinesses with temporary heavy workloads. Your employer is alsoconsidering the purchase of Biggerstaff & McDonald (B&M), aprivately held company owned by two friends, each with 5 millionshares of stock. B&M currently has free cash flow of $24million, which is expected to grow at a constant rate of 5%.B&Mâs financial statements report short-term investments of$100 million, debt of $200 million, and preferred stock of $50million. B&Mâs weighted average cost of capital (WACC) is 11%.Answer the following questions.
1. Describe briefly the legal rights and privilegesof common stockholders.
2. What is free cash flow (FCF)? What is theweighted average cost of capital? What is the free cash flowvaluation model?
3. Use a pie chart to illustrate the sources thatcomprise a hypothetical companyâs total value. Using another piechart, show the claims on a companyâs value. How is equity aresidual claim?
4. Suppose the free cash flow at Time 1 is expectedto grow at a constant rate of forever. If, what is a formula forthe present value of expected free cash flows when discounted atthe WACC? If the most recent free cash flow is expected to grow ata constant rate of forever (and), what is a formula for the presentvalue of expected free cash flows when discounted at the WACC?
Using complete sentences and academic vocabulary, please answerquestions 1 thru 4. Please don't copy from other sources. Thankyou
Your employer, a mid-sized human resources management company,is considering expansion into related fields, including theacquisition of Temp Force Company, an employment agency thatsupplies word processor operators and computer programmers tobusinesses with temporary heavy workloads. Your employer is alsoconsidering the purchase of Biggerstaff & McDonald (B&M), aprivately held company owned by two friends, each with 5 millionshares of stock. B&M currently has free cash flow of $24million, which is expected to grow at a constant rate of 5%.B&Mâs financial statements report short-term investments of$100 million, debt of $200 million, and preferred stock of $50million. B&Mâs weighted average cost of capital (WACC) is 11%.Answer the following questions.
1. Describe briefly the legal rights and privilegesof common stockholders.
2. What is free cash flow (FCF)? What is theweighted average cost of capital? What is the free cash flowvaluation model?
3. Use a pie chart to illustrate the sources thatcomprise a hypothetical companyâs total value. Using another piechart, show the claims on a companyâs value. How is equity aresidual claim?
4. Suppose the free cash flow at Time 1 is expectedto grow at a constant rate of forever. If, what is a formula forthe present value of expected free cash flows when discounted atthe WACC? If the most recent free cash flow is expected to grow ata constant rate of forever (and), what is a formula for the presentvalue of expected free cash flows when discounted at the WACC?
Using complete sentences and academic vocabulary, please answerquestions 1 thru 4. Please don't copy from other sources. Thankyou
