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=
D1/(1+K)+ D2/(1+K)2+
D3/(1+K)3+..+Dn/(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=
D0 (1+g)/k-g
3-what happens if a company has 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)? 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
(D0,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:
Dn=Dn-1 (1+g)
D0= 2.00 $ , g = 6%
D1= 2 (1+0.06) = 2.12$
D2= 2.12 (1+0.06) = 2.2472$
D3= 2.247 (1+0.06) = 2.38182$
Year 1
Year 2
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= D1/(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= D1/pt-1
= 2.12/30.28 = 7%
Capital gain yield= pt-pt-1/pt-1
= 32.10-30.28/30.28=6%
Expected total return=
7%+6%=13%
E/ now assume that the stock is currently
selling at $30.29, what is it's expected rate of
return?
To calculate the required rate of return we
will apply this formula:
P=D1/(k-g)
Then,
K=(D1/p)+g
= (2.12/30.29)+6% = 13%
F/ what would the stock price be if the
dividends were expected to have zero
growth?
 We
will consider "g" as 0 in the formula as
following , the formula to solve the
question:
P= D0(1+0)/(k-0)
P= 2*1/0.13-0 = 15.38$
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=D0(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=D1/P0
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= Pt-Pt-1/Pt-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=D4/P0
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= Pt-Pt-1/Pt-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%