How to Answer Leadership Questions and Promote Your College Essay

<h1>How to Answer Leadership Questions and Promote Your College Essay</h1><p>As part of the arrangement procedure for your school papers, you might be approached to set up a school article on authority. Regardless of whether you're doing this all alone or with a gathering of understudies, it's constantly essential to realize how to respond to authority questions and to take your article writing to the following level.</p><p></p><p>Leadership is a significant issue. It can assist with drawing out some innovativeness in your paper. At the point when you get ready for your article, realize how to respond to initiative unbelievably up. In the event that you don't, you will be confronted with a troublesome assignment ahead.</p><p></p><p>The first inquiry you should consider is the topic of inspiration. Your article ought to contain answers to this inquiry. You should give inspiration to the individuals you are tending to in your article. On the off chance that you don't, they will be dubious that you have any in them.</p><p></p><p>Another great inquiry to pose to yourself is, 'The thing that do you need to lose by expounding on this?' Think about what you have achieved so far in your life and where you need to go. Would you like to go up higher in your profession? Would you like to go further in your business?</p><p></p><p>Consider your self-awareness because of your investment in the group. On the off chance that you need to go higher in your business, you ought to remember data for your self-improvement too. How might you feel on the off chance that you had prevailing in your business?</p><p></p><p>I was a secondary school senior and an individual from the discussion group. We won each time we went into the discussion competition, regardless of whether we lost each round. In the wake of winning our competition we got an honor fr om the school, which we introduced to our coach.</p><p></p><p>I gained such a great amount from my mentor. It was stunning how he could see something about me that I had not contemplated. I discovered that my concern was in my certainty. I discovered that I expected to improve my certainty and my objective was to become leader of the discussion team.</p><p></p><p>Before you start your paper you ought to compose a short moving example of overcoming adversity. There are numerous individuals who feel they can achieve extraordinary things, however are not fruitful in light of the fact that they come up short on the mental fortitude to make the enormous stride. Try not to let anybody discourage you from your goal.</p>

Ideas, Formulas and Shortcuts for Argumentative Essay Topics on Health Care

<h1>Ideas, Formulas and Shortcuts for Argumentative Essay Topics on Health Care </h1> <h2> Argumentative Essay Topics on Health Care: the Ultimate Convenience!</h2> <p>Your paper must incorporate a completely uneven end expressing your own position is acceptable while that of your adversary is totally awful. Pugnacious works is a specific kind of a paper. </p> <p>There's no need in making an assurance, which medical issue or wonders is increasingly critical at this moment or what's left in the shadows and ought to be edified in any event in your exposition. Possibly you by and by have a summed up thought of what things to write in your brain, and the accompanying will empower you to focus on some particular idea or maybe change your decision. The full work should be done correctly so that there's no escape clause in your composing method and the data that you're giving. There are a great deal of things to contend when it has to do with the law. </p> <p>It's conceivable to adjust the points or use them since they are. Subjects identified with wellbeing give an incredible scope of decision. Whenever you're looking for an exploration point for your examinations and couldn't imagine anything better than to focus on wellbeing brain science, consider the recommendations that follow. Investigate the resulting research subjects i n social insurance and select your ideal point. </p> <p>Click the read more to arrive is a lot of warmed discussion on a great deal of medical problems in United States of america, yet additionally in various locales of the world. House calls were once regular practice in the medicinal services region yet are by and by an irregularity. In numerous decades, you will be a Doctor of Science. No individual works in the zone of open wellbeing today without tending to the subject of HIV and AIDS. </p> <p>Shows what you might want to see. Studies on the fluoridation of water in america were handling positive advantages with respect to decreasing the amount of caries in occupants. </p> <h2>Introducing Argumentative Essay Topics on Health Care </h2> <p>Wearing night robe in bed is useful for your wellbeing. All things considered, since there are a few proposals to improve one's wellbeing, not all them are verified appropriately. Why getting away is useful for your prosperity. The best approach to have a healthy pregnancy. </p> <p>Why you should deal with your teeth. Discover increasingly about the contentions for and against an all inclusive clinical consideration program. On the criticalness of medical coverage. Future and clinical consideration uses. </p> <p>Inspiration to make your own publicizing or media contentious exposition subjects isn't trying to find. You don't have to secure excessively specialized with lawful contentious expositions, however make sure to get your work done on what the current laws about your preferred subject really state. In the event that you accept you'll barely succeed causing your own subject, to think about attempting to discover smart thoughts on the net, at assets that give valuable rules on successful exposition composing procedures. At the point when you need to create a clinical factious paper theme, you wish to pick one which you know a modest piece about on the grounds that then it will deliver the exploration a lot less difficult and you'll show signs of improvement way to deal with the subject. </p> <p>For case, in school, you may be mentioned to form a paper from the restricting viewpoint. Our expert authors think about the central components of a contentious exposition. On the off chance that you've been alloted an occupation of composing a dubious clinical paper on a specific theme and you don't have a clue about the best places to begin, we are the perfect group for you. Need to have increasingly innovative thoughts regarding how to set up a triumphant article on wellbeing. </p> <p>Using quantitative wellbeing data is developing quickly. In our general public today, there are various wellbeing challenges. Regardless of your age or wellness level, you're in the long run liable to need the assistance of somebody inside the clinical consideration advertise. An efficient, productive medicinal services framework isn't so natural to give and among the essential issues on the most ideal path to the ideal emergency clinics and clinical assistance is legitimate subs idizing. </p> <p>The cost of human services is only one of the most basic difficulties. Under such circumstance on the off chance that you're not having a predominant medicinal services community in your general vicinity, at that point it's extremely tolerant. In the event that you trust you get a help associated inability, or need assistance to confirm that you do, the Alpha group is prepared to help you. Others couldn't bear the cost of the most up to date innovation like X-beam machines. </p>

Sample Essay on Writing Short Stories - Comparison of Two Short Stories

Sample Essay on Writing Short Stories - Comparison of Two Short StoriesThe sample essay should serve as a 'checklist' for the rest of the writing assignments and make a student understand how to prepare a short story or poem for publication. It can be a refresher on the basics of literary form, structure, style, and grammar.In the first paragraph, there is a quotation from 'The Great Gatsby' that describes how great a short story is compared to a novel. A review of the structure of the short story is provided in the second paragraph. Briefly, the two stories are very different and one clearly surpassed the other.The structure of the short story is based on an act, subject, theme, and action. The third paragraph takes the reader back to the first paragraph and compares both short stories to the central idea of each. The comparison is a logical one. The central idea of each story is about comparing or contrasting two opposing things, so the comparison is complete.After the first paragr aph, there is a brief synopsis of the first short story. This provides synopses of the main features and characteristics of the first story, as well as providing context for the events of the short story and the character in each story.The next paragraph outlines the theme of the short story. It is essential that the writer makes the theme clear and memorable. In the third paragraph, both short stories are compared to each other and the theme of each is understood. The writer's role is to provide context for the comparison, and also to describe the contrast of one story against the other.The last two paragraphs summarize the essay. This is the part of the essay where the writer brings the essay to a close. He or she tells the reader why this essay is useful and provides an example of a literary work that demonstrates the same structure.The final paragraph is the conclusion to the essay. The writer reminds the reader that they now have the briefest glimpse of each story and highlight s what they learned. It is the writer's task to build upon the lessons learned.Each student should complete this sample essay comparing two short stories when completing their first short story writing assignment. Each student will find it difficult to achieve the standard of the standard being measured in this essay.

How to Use a Pattern For Writing Essay

How to Use a Pattern For Writing EssayThe use of a pattern for writing essay is an excellent and simple tool that can help you in writing your assignment quickly. It is a guide that has many uses in the process of writing your assignment. However, you may not be aware of how useful it can be when it comes to writing your assignment. Using a pattern for writing essay can help you develop your ideas while you are doing it.It is one of the best tools that you can use to make the task of writing an essay less complicated. You do not have to worry about starting an essay from scratch and then continue writing it as you go. This is very useful especially if you have too much information to organize. You can simply copy what you see or read in other articles. You can simply insert your own ideas and give more emphasis to the content of the essay.One of the most important things to remember while you are doing this is that you have to concentrate on the content of the essay. Do not start typ ing the essay right away and continue to do it later. This is very important since when you are writing the essay, you should have a clear vision of what you want to write.So, if you start with a pattern for writing an essay, you can follow the article to further develop your ideas in the essay. Once you finished it, you can continue to change your idea based on your knowledge of the subject. If you start with a pattern for writing the essay, you will definitely finish it in a short time.Another important thing is that you should focus on the content of the essay. Once you finish writing your essay, you should always remember to keep the content intact. Do not add anything because this can spoil the whole purpose of writing. You should include your sources and must include only the facts or data that you can find.Other than that, you can also add some additional resources that will help you expand your knowledge. These additional resources include any books or websites that can supp ort you in your research. All these things can help you as you continue to develop your idea in your essay.If you want to complete a large assignment fast, this is the tool that you can use. You can just copy the pattern for writing essay from one of the topics and paste it in your essay. Do not worry about changing the order or format as long as the theme and content remain the same. Thus, using a pattern for writing essay can help you finish a big assignment in a short time.

The Idiots Handbook to Research Topic Outline

The Idiot's Handbook to Research Topic Outline Planning not only enters the research itself but into multiple phases of the draft. You have the ability to write only its principal sections or present a thorough plan with several subsections. You could also see report outline. You could also see program outline. You can also see presentation outline. Developing a good outline is vital in an additional composing of your research paper. A research paper outline, though, will additionally have a hypothesis or thesis as a portion of the introduction. By studying various outline samples, you're guaranteed to come up with the ideal research paper outline in almost no time. The research paper outline will help to clarify the topic of the research paper, guide the subject matter to remain on course, and helps to begin the writing of the true research paper. The outline of your customized research paper is likely to reflect upon your research so make certain that it offers a good idea about what your paper will discuss. The one difference is the true content presented in the paper. Nobody will argue that It's quite challenging to compose an academic paper if there's no structure for it. If you take a close look at research paper outline examples, you will observe there are several methods to present the major body. New Ideas Into Research Topic Outline Never Before Revealed You ought to be detached and objective in your writing. Explain briefly the big points you want to cover in your paper and why readers ought to be interested in your topic. A topic outline acts as a quick summary of the topics included in your paper. It is most effective once you need to objectively discuss about a specific topic without attempting to sound persuasive. You're not required to produce a new or unique method (though you can test out!) Employing an outline template can assist the student organize the paper and eliminate the ideas that aren't related to the intention of the essay. Your principal theme and the chosen literature ought to be adjacent. The MLA format stipulates the essential guidelines for effectively writing an essay in line with the MLA standards. An outline is going to be a reminder for you to include all the crucial subtleties in it. So, creation of an outline ought to be the next step after you've decided on your topic. There it is possible to learn to construct the structure and its elements. In case the structure of the chief body has many levels, it is preferable to use different numbering styles. Examples of such templates are excellent for education and company jobs since they may be immensely helpful when you're short in time and confused about the proper way to prepare a print outline. If you're a template that permits you to organize your ideas and pen down clean and precise sample research ideas, you should certainly elect for premium superior research outline template that it is possible to download free of charge. A template will allow you to identify the important components of your proposal, and that means you may know what goes where. A research outline template is readily gettable on the web. It is possible to also describe the reach of your research. Don't forget, you're not setting out to conduct research so as to prove a point. After reading the thesis, there ought to be no doubt precisely what the research will be about. If you are going to be conducting your own research, like through a survey or a scientific experiment, you will have to outline the pre cise process that you want to use. For instance, you may have I. A. 1. Conducting a research isn't any doubt an elaborate affair and with all these tasks to do, it isn't uncommon to shed consistency if there's absolutely no outline. Whether you do an easy research or a complicated one for a larger project, a research outline can help you receive the best outcomes.

Gender Discrimination And The Sport Industry - 786 Words

Since a young girl, my dream has been to occupy a career within the sport industry. However, as I have gotten older and more aware of the demographics of who occupy the title of executive and leader within the sport industry—mainly men, it has intrigued my interest in knowing why there is a skewed correlation between gender and leadership. In sports, â€Å" [†¦] simply being male permits all men to benefit from the marginalization of all women† (Anderson, p.128, 2010). Sadly, gender stereotypes and ideologies have restricted and withheld women within the professional sport domain from growing and moving up within the industry. However, due to women proclaiming their position and leadership within the sport industry, the number of women executives and leaders are beginning to rise. This rise of women leaders within sports is positive to finally see that women are starting to receive the recognition and position that they deserve. However, there are still great strid es that the sport industry needs to make with their hiring practices to eliminate gender-based leadership stereotypes to bring equality and equity for women in sports. Historically, on one hand, women have been deemed as leaders within the confines of homemakers, wives, and mothers. On the other, women have been deemed incompetent and too weak to have leadership positions also known as â€Å"rule congruity theory† (Grappendorf, 2015). Even though women are leaders of their home, this is and should not be the only capacityShow MoreRelatedGender Inequality And The Social Construction Of Gender1562 Words   |  7 Pagesof gender, race, class, and sexuality have led to discrimination and inequality of those classified under a variety of these categories. Through understanding the significance of these social constructs on society it becomes apparent the intersectionality they have when it comes to understanding why certain groups may face discrimination or inequality. This paper examines gender inequality and how the social construction of gender makes it difficult for the pursuit of equality amongst genders. GenderRead MoreThe Construction And Experience Of Gender Inequality1395 Words   |  6 Pagesconstruction and experience of gender inequality. Men and women are constantly analyzed, compared, and grouped together in society. The result of this yields discrepancies in how sexes are viewed by society. Throughout my examination and explanation of gender inequality, I concluded both men and women are victims to gender inequality. I examined different professional industries in The United States to get a familiar understanding of gender inequality around me. Gender inequality does not particularlyRead MoreThe Sports World, A Male-Dominated Field, Has Not Given1482 Words   |  6 PagesThe sports world, a male-dominated field, has not given women enough opportunities to perform and grow at a level equivalent to their male counterparts. In particular, female sports broadcasters continue to bear the brunt of hatred and sexism from male and female critics alike. These critics are making themselves known more and more on social media, especially Twitter. Social media has grown to become this major platform for people to express themselves freely and to reach out to celebrities, athletesRead MoreGender Inequality Within Sports And Sports1197 Words   |  5 PagesAll women athletes worked extremely hard to get where they are now, but with gender inequality in sports their hard work will go to waste. Gender inequali ty is unlawful because of Title IX, a law that was passed in 1972, that banned gender discrimination in sports (Buzuvis and Newhall). Even though it is against the law, many colleges and sports associations still give unfair benefits to men’s sports, such as more opportunities, better fields, higher salaries, etc, and are not getting punished forRead MoreThe Importance Of Equal Pay, Rights And Opportunity For Women Involved With Sports1629 Words   |  7 PagesThis podcast will distinguish the stiffening number of the lack of equal pay, rights and opportunity for women involved with sports. This topic was selected because this is evident based on the staggering numbers of women performing and displaying either equal or more in terms of success, achievement or work load and still are behind when comparing salaries between men and women. Hopefully, this podcast will shine some light on this subject and bring awareness. Based on prior research conductedRead MoreDiscriminatio n Is Not A New Controversy1974 Words   |  8 PagesDiscrimination in sport is not a new controversy, discrimination in all forms has been happening since the very beginning of physical activity and sport. Some forms of discrimination in sport include sexism, gender stereotyping, homophobia, and racism. All forms of discrimination affect everyone involved in sport, from athletes to coaches, spectators to owners. To fully comprehend the effects of discrimination in sport, we must understand the definition of discrimination. According to Oxford DictionaryRead MoreHow Are Women Valued Today?1702 Words   |  7 PagesHow are women valued in sports? This paper will argue systems, oppression and power against women in sports and in society and will talk about the system of sports and the discrimination against women in society. It will include the question how are women valued in sports and how it plays a big role in society today? In sports, women make less money than men. This has a g reat deal to do with race, gender, and ableism against women. Basketball is a sport where women make significantly less money thanRead MoreWomen : The Shape Of American Culture835 Words   |  4 Pages Sports became the shape of American culture in the early 1900s. It was the face of masculinity and manliness. Sports were created to show off the strength and toughness in men, and according to past physical educators, women did not possess these traits. Therefore, it was frowned upon for females to participate in sporting activity. Critics of women justified these assumptions by providing false medical accusations as to why women should not participate in sports. Some critics believed that if womenRead MoreThe Woman Warrior : Memoirs Of A Girlhood Among Ghosts1833 Words   |  8 Pagesaccomplishment for American sports, as it was the team’s first championship win in 16 years, but the win was also a benchmark for female athletes in professional sports as it showed the potential of these athletes, but also showed many of the obstacles that are currently in their way. Despite having overcome milestones throughout the years in the professional sports industry, there is still a l ack of opportunities for women. In addition, many females in the sports industry (including athletes, journalistsRead MoreCongress Enacted Title Vii Of The Civil Rights Act966 Words   |  4 Pagesensure that all people who are seeking employment will not be discriminated against regardless of their race, national origin, color sex, or religious beliefs. In the four given examples of casting calls, it would seem that disparate treatment discrimination was blatant in the both the wording and premise of the casting notices. Since it seems to be common practice for agencies to create casting notices that openly call for certain races or colors of people, it would seem that any person who wasn’t

Financial Management Chapter 8 K Free Essays

ey Chapter 8 Stocks and Their Valuation LEARNING OBJECTIVES After reading this chapter, students should be able to: †¢ Identify some of the more important rights that come with stock ownership and define the following terms: proxy, proxy fight, takeover, and preemptive right. †¢ Briefly explain why classified stock might be used by a corporation and what founders’ shares are. †¢ Differentiate between closely held and publicly owned corporations and list the three distinct types of stock market transactions. We will write a custom essay sample on Financial Management Chapter 8 K or any similar topic only for you Order Now Determine the value of a share of common stock when: (1) dividends are expected to grow at some constant rate, (2) dividends are expected to remain constant, and (3) dividends are expected to grow at some super-normal, or nonconstant, growth rate. †¢ Calculate the expected rate of return on a constant growth stock. †¢ Apply the total company (corporate value) model to value a firm in situations when the firm does not pay dividends or is privately held. †¢ Explain why a stock’s intrinsic value might differ between the total company model and the dividend growth model. Explain the following terms: equilibrium, marginal investor, and Efficient Markets Hypothesis (EMH); distinguish among the three levels of market efficiency; briefly explain the implications of the EMH on financial decisions; and discuss the results of empirical studies on market efficiency and the implication of behavioral finance on those results. †¢ Read and understand the stock market page given in the daily newspaper. †¢ Explain the reasons for investing in international stocks and identify the â€Å"bets† an investor is making when he does invest overseas. Define preferred stock, determine the value of a share of preferred stock, or given its value, calculate its expected return. 1. LECTURE SUGGESTIONS This chapter provides important and useful information on common and preferred stocks. Moreover, the valuation of stocks reinforces the concepts covered in both Chapters 6 and 7, so Chapter 8 extends and reinforces those chapters. We begin our lecture with a discussion of the characteristics of common stocks, after which we discuss how stocks are valued in the market and how stock prices are reported in the press. We conclude the lecture with a discussion of preferred stocks. The details of what we cover, and the way we cover it, can be seen by scanning Blueprints Chapter 8. For other suggestions about the lecture, please see the â€Å"Lecture Suggestions† in Chapter 2, where we describe how we conduct our classes. DAYS ON CHAPTER: 3 OF 58 DAYS (50-minute periods) ANSWERS TO END-OF-CHAPTER QUESTIONS 8-1True. The value of a share of stock is the PV of its expected future dividends. If the two investors expect the same future dividend stream, and they agree on the stock’s riskiness, then they should reach similar conclusions as to the stock’s value. -2A perpetual bond is similar to a no-growth stock and to a share of preferred stock in the following ways: 1. All three derive their values from a series of cash inflows–coupon payments from the perpetual bond, and dividends from both types of stock. 2. All three are assumed to have indefinite lives with no maturity value (M) for the perpetual bond and no capital gains yield for the stocks. 8-3Yes. If a company decides to increase its payout ratio, then the dividend yield component will rise, but the expected long-term capital gains yield will decline. 8-4No. The correct equation has D1 in the numerator and a minus sign in the denominator. -5a. The average investor in a listed firm is not really interested in maintaining his proportionate share of ownership and control. If he wanted to increase his ownership, he could simply buy more stock on the open market. Consequently, most investors are not concerned with whether new shares are sold directly (at about market prices) or through rights offerings. However, if a rights offering is being used to effect a stock split, or if it is being used to reduce the underwriting cost of an issue (by substantial underpricing), the preemptive right may well be beneficial to the firm and to its stockholders. . The preemptive right is clearly important to the stockholders of closely held firms whose owners are interested in mai ntaining their relative control positions. SOLUTIONS TO END-OF-CHAPTER PROBLEMS 8-1D0 = $1. 50; g1-3 = 5%; gn = 10%; D1 through D5 = ? D1 = D0(1 + g1) = $1. 50(1. 05) = $1. 5750. D2 = D0(1 + g1)(1 + g2) = $1. 50(1. 05)2 = $1. 6538. D3 = D0(1 + g1)(1 + g2)(1 + g3) = $1. 50(1. 05)3 = $1. 7364. D4 = D0(1 + g1)(1 + g2)(1 + g3)(1 + gn) = $1. 50(1. 05)3(1. 10) = $1. 9101. D5 = D0(1 + g1)(1 + g2)(1 + g3)(1 + gn)2 = $1. 50(1. 05)3(1. 10)2 = $2. 1011. 8-2D1 = $0. 50; g = 7%; ks = 15%; [pic] = ? [pic] -3P0 = $20; D0 = $1. 00; g = 10%; [pic] = ? ; ks = ? [pic] = P0(1 + g) = $20(1. 10) = $22. ks= [pic] + g = [pic] + 0. 10 = [pic] + 0. 10 = 15. 50%. ks = 15. 50%. 8-4Dp = $5. 00; Vp = $60; kp = ? kp = [pic] = [pic] = 8. 33%. 8-5a. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. b. 0 1 2 3 | | | | 1. 25 1. 50 1. 80 1. 89 37. 80 = [pic] The horizon, or terminal, value is the value at the horizon date of all dividends expected there after. In this problem it is calculated as follows: pic] c. The firm’s intrinsic value is calculated as the sum of the present value of all dividends during the supernormal growth period plus the present value of the terminal value. Using your financial calculator, enter the following inputs: CF0 = 0, CF1 = 1. 50, CF2 = 1. 80 + 37. 80 = 39. 60, I = 10, and then solve for NPV = $34. 09. 6. The firm’s free cash flow is expected to grow at a constant rate, hence we can apply a constant growth formula to determine the total value of the firm. Firm Value = FCF1/(WACC – g) Firm Value = $150,000,000/(0. 10 – 0. 05) Firm Value = $3,000,000,000. To find the value of an equity claim upon the company (share of stock), we must subtract out the market value of debt and preferred stock. This firm happens to be entirely equity funded, and this step is unnecessary. Hence, to find the value of a share of stock, we divide equity value (or in this case, firm value) by the number of shares outstanding. Equity Value per share = Equity Value/Shares outstanding Equity Value per share = $3,000,000,000/50,000,000 Equity Value per share = $60. Each share of common stock is worth $60, according to the corporate valuation model. 8-7a. 0 1 2 3 4 | | | | 3,000,000 6,000,000 10,000,000 15,000,000 Using a financial calculator, enter the following inputs: CF0 = 0; CF1 = 3000000; CF2 = 6000000; CF3 = 10000000; CF4 = 15000000; I = 12; and then solve for NPV = $24,112,308. b. The firm’s terminal value is calculated as follows: [pic] c. The firm’s total value is calculated as follows: 0 1 2 3 4 5 | | | | | | 3,000,000 6,000,000 10,000,000 15,000,000 16,050,000 PV = ? 321,000,000 = [pic] Using your financial calculator, enter the following inputs: CF0 = 0; CF1 = 3000000; CF2 = 6000000; CF3 = 10000000; CF4 = 15000000 + 321000000 = 336000000; I = 12; and then solve for NPV = $228,113,612. d. To find Barrett’s stock price, you need to first find the value of its equity. The value of Barrett’s equity is equal to the value of the total firm less the market value of its debt and preferred stock. Total firm value$228,113,612 Market value, debt + preferred 60,000,000 (given in problem) Market value of equity$168,113,612 Barrett’s price per share is calculated as: [pic] 8-8FCF = EBIT(1 – T) + Depreciation – [pic] – ([pic] = $500,000,000 + $100,000,000 – $200,000,000 – $0 = $400,000,000. Firm value = [pic] = [pic] = [pic] = $10,000,000,000. This is the total firm value. Now find the market value of its equity. MVTotal= MVEquity + MVDebt $10,000,000,000= MVEquity + $3,000,000,000 MVEquity= $7,000,000,000. This is the market value of all the equity. Divide by the number of shares to find the price per share. $7,000,000,000/200,000,000 = $35. 00. 8-9a. Terminal value = [pic] = [pic]= $713. 33 million. . 0 1 2 3 4 | | | | | -20 30 40 42. 80 ($ 17. 70) 23. 49 522. 10 753. 33 $527. 89 Using a financial calculator, enter the following inputs: CF0 = 0; CF1 = -20; CF2 = 30; CF3 = 753. 33; I = 13; and then solve for NPV = $527. 89 million. c. Total valuet=0 = $527. 89 million. Value of common equity = $527. 89 – $100 = $427. 89 million. Price per share = [pic] = $42. 79. 8-10The problem asks you to determine the value of [pic], given the following facts: D1 = $2, b = 0. 9, kRF = 5. %, RPM = 6%, and P0 = $25. Proceed as follows: Step 1:Calculate the required rate of return: ks = kRF + (kM – kRF)b = 5. 6% + (6%)0. 9 = 11%. Step 2:Use the constant growth rate formula to calculate g: [pic] Step 3:Calculate [pic]: [pic] = P0(1 + g)3 = $25(1. 03)3 = $27. 3182 ( $27. 32. Alternatively, you could calculate D4 and then use the constant growth rate formula to solve for [pic]: D4 = D1(1 + g)3 = $2. 00(1. 03)3 = $2. 1855. [pic] = $2. 1855/(0. 11 – 0. 03) = $27. 3182 ( $27. 32. 8-11Vp = Dp/kp; therefore, kp = Dp/Vp. a. kp = $8/$60 = 13. 3%. b. kp = $8/$80 = 10. 0%. c. p = $8/$100 = 8. 0%. d. kp = $8/$140 = 5. 7%. 8-12[pic] 8-13a. ki = kRF + (kM – kRF)bi. kC = 9% + (13% – 9%)0. 4 = 10. 6%. kD = 9% + (13% – 9%)(-0. 5) = 7%. Note that kD is below the risk-free rate. But since this stock is like an insurance policy because it â€Å"pays off† when something bad happens (the market falls), the low return is not unreasonable. b. In this situation, the expected rate of return is as follows: [pic] = D1/P0 + g = $1. 50/$25 + 4% = 10%. However, the required rate of return is 10. 6 percent. Investors will seek to sell the stock, dropping its price to the following: pic] At this point, [pic], and the stock will be in equilibrium. 8-14Calculate the dividend cash flows and place them on a time line. Also, calculate the stock price at the end of the supernormal growth period, and include it, along with the dividend to be paid at t = 5, as CF5. Then, enter the cash flows as shown on the time line into the cash flow register, enter the required rate of return as I = 15, and then find the value of the stock using the NPV calculation. Be sure to enter CF0 = 0, or else your answer will be incorrect. D0 = 0; D1 = 0; D2 = 0; D3 = 1. 0; D4 = 1. 00(1. 5) = 1. 5; D5 = 1. 00(1. 5)2 = 2. 25; D6 = 1. 00(1. 5)2(1. 08) = $2. 43. [pic] = ? 0 1 2 3 4 5 6 | | | | | | | 1. 00 1. 50 2. 25 2. 43 0. 658 +34. 71 = 0. 858 18. 378 36. 96 $19. 894 = [pic] [pic] = D6/([pic] – g) = $2. 43/(0. 15 – 0. 08) = $34. 71. This is the stock price at the end of Year 5. CF0 = 0; CF1-2 = 0; CF3 = 1. 0; CF4 = 1. 5; CF5 = 36. 96; I = 15%. With these cash flows in the CFLO register, press NPV to get the value of the stock today: NPV = $19. 89. 8-15a. The preferred stock pays $8 annually in dividends. Therefore, its nominal rate of return would be: Nominal rate of return = $8/$80 = 10%. Or alternatively, you could determine the security’s periodic return and multiply by 4. Periodic rate of return = $2/$80 = 2. 5%. Nominal rate of return = 2. 5% ( 4 = 10%. b. EAR = (1 + NOM/4)4 – 1 EAR = (1 + 0. 10/4)4 – 1 EAR = 0. 103813 = 10. 3813%. -16The value of any asset is the present value of all future cash flows expected to be generated from the asset. Hence, if we can find the present value of the dividends during the period preceding long-run constant growth and subtract that total from the current stock price, the remaining value would be the present value of the cash flows to be received during the period of long-run constant growth. D1 = $2. 00 ( (1. 25)1 = $2. 50PV(D1) = $2. 50/(1. 12)1= $2. 2321 D2 = $2. 00 ( (1. 25)2 = $3. 125PV(D2) = $3. 125/(1. 12)2= $2. 4913 D3 = $2. 00 ( (1. 25)3 = $3. 90625PV(D3) = $3. 0625/(1. 12)3= $2. 7804 ( PV(D1 to D3)= $7. 5038 Therefore, the PV of the remaining dividends is: $58. 8800 – $7. 5038 = $51. 3762. Compounding this value forward to Year 3, we find that the value of all dividends received during constant growth is $72. 18. [$51. 3762(1. 12)3 = $72. 18. ] Applying the constant growth formula, we can solve for the constant growth rate: [pic]= D3(1 + g)/(ks – g) $72. 1807= $3. 90625(1 + g)/(0. 12 – g) $8. 6616 – $72. 18g= $3. 90625 + $3. 90625g $4. 7554= $76. 08625g 0. 0625= g 6. 25%= g. 8-17First, solve for the current price. P0 = D1/(ks – g) P0 = $0. 50/(0. 2 – 0. 07) P0 = $10. 00. If the stock is in a constant growth state, the constant dividend growth rate is also the capital gains yield for the stock and the stock price growth rat e. Hence, to find the price of the stock four years from today: [pic] = P0(1 + g)4 [pic] = $10. 00(1. 07)4 [pic] = $13. 10796 ? $13. 11. [pic] 8-18a. [pic] b. [pic] 8-19 0 1 2 3 4 | | | | | D0 = 2. 00 D1 D2 D3 D4 g = 5% [pic] a. D1 = $2(1. 05) = $2. 10; D2 = $2(1. 05)2 = $2. 21; D3 = $2(1. 5)3 = $2. 32. b. Financial Calculator Solution: Input 0, 2. 10, 2. 21, and 2. 32 into the cash flow register, input I = 12, PV = ? PV = $5. 29. c. Financial Calculator Solution: Input 0, 0, 0, and 34. 73 into the cash flow register, I = 12, PV = ? PV = $24. 72. d. $24. 72 + $5. 29 = $30. 01 = Maximum price you should pay for the stock. e. [pic] f. No. The value of the stock is not dependent upon the holding period. The value calculated in Parts a through d is the value for a 3-year holding period. It is equal to the value calculated in Part e except for a small rounding error. Any other holding period would produce the same value of [pic]; that is, [pic] = $30. 00. 8-20a. 1. [pic] 2. [pic] = $2/0. 15 = $13. 33. 3. [pic] 4. [pic] b. 1. [pic] = $2. 30/0 = Undefined. 2. [pic] = $2. 40/(-0. 05) = -$48, which is nonsense. These results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate. c. No. 8-21The answer depends on when one works the problem. We used the February 3, 2003, issue of The Wall Street Journal: a. $16. 81 to $36. 72. b. Current dividend = $0. 75. Dividend yield = $0. 75/$19. 8 ( 3. 9%. You might want to use ($0. 75)(1 + g)/$19. 48, with g estimated somehow. c. The $19. 48 close was up $0. 98 from the previous day’s close. d. The return on the stock consists of a dividend yield of about 3. 9 percent plus some capital gains yield. We would expect the total rate of return on stock to be in the 10 to 12 percent range. 8-22a. End of Year: 02 03 04 05 06 07 08 | | | | | | | D0 = 1. 75 D1 D2 D3 D4 D5 D6 Dt= D0(1 + g)t D2003= $1. 75(1. 15)1 = $2. 01. D2004= $1. 5(1. 15)2 = $1. 75(1. 3225) = $2. 31. D2005= $1. 75(1. 15)3 = $1. 75(1. 5209) = $2. 66. D2006= $1. 75(1. 15)4 = $1. 75(1. 7490) = $3. 06. D2007= $1. 75(1. 15)5 = $1. 75(2. 0114) = $3. 52. b. Step 1: PV of dividends = [pic]. PV D2003 = $2. 01/(1. 12)= $1. 79 PV D2004 = $2. 31/(1. 12)2= $1. 84 PV D2005 = $2. 66/(1. 12)3= $1. 89 PV D2006 = $3. 06/(1. 12)4= $1. 94 PV D2007 = $3. 52/(1. 12)5= $2. 00 PV of dividends= $9. 46 Step 2: [pic] This is the price of the stock 5 years from now. The PV of this price, discounted back 5 years, is as follows: PV of [pic] = $52. 80/(1. 12)5 = $29. 6. Step 3: The price of the stock today is as follows: [pic]= PV dividends Years 2003-2007 + PV of [pic] = $9. 46 + $29. 96 = $39. 42. This problem could also be solved by substituting the proper values into the following equation: [pic]. Calculator solution: Input 0, 2. 01, 2. 31, 2. 66, 3. 06, 56. 32 (3. 52 + 52. 80) into the cash flow register, input I = 12, PV = ? PV = $39. 43. c. 2003 D1/P0 = $2. 01/$39. 43= 5. 10% Capital gains yield= 6. 90* Expected total return= 12. 00% 2008 D6/P5 = $3. 70/$52. 80= 7. 00% Capital gains yield= 5. 00 Expected total return= 12. 00% We know that ks is 12 percent, and the dividend yield is 5. 10 percent; therefore, the capital gains yield must be 6. 90 percent. The main points to note here are as follows: 1. The total yield is always 12 percent (except for rounding errors). 2. The capital gains yield starts relatively high, then declines as the supernormal growth period approaches its end. The dividend yield rises. 3. After 12/31/07, the stock will grow at a 5 percent rate. The dividend yield will equal 7 percent, the capital gains yield will equal 5 percent, and the total return will be 12 percent. d. People in high income tax brackets will be more inclined to purchase â€Å"growth† stocks to take the capital gains and thus delay the payment of taxes until a later date. The firm’s stock is â€Å"mature† at the end of 2007. e. Since the firm’s supernormal and normal growth rates are lower, the dividends and, hence, the present value of the stock price will be lower. The total return from the stock will still be 12 percent, but the dividend yield will be larger and the capital gains yield will be smaller than they were with the original growth rates. This result occurs because we assume the same last dividend but a much lower current stock price. . As the required return increases, the price of the stock goes down, but both the capital gains and dividend yields increase initially. Of course, the long-term capital gains yield is still 4 percent, so the long-term dividend yield is 10 percent. 8-23a. Part 1: Graphical representation of the problem: Supernorm al Normal growth growth 0 1 2 3 ( | | | | †¢Ã¢â‚¬ ¢Ã¢â‚¬ ¢ | D0 D1 (D2 + [pic]) D3 D( PVD1 PVD2 [pic] P0 D1 = D0(1 + gs) = $1. 6(1. 20) = $1. 92. D2 = D0(1 + gs)2 = $1. 60(1. 20)2 = $2. 304. [pic] [pic]= PV(D1) + PV(D2) + PV([pic]) = [pic] = $1. 92/1. 10 + $2. 304/(1. 10)2 + $61. 06/(1. 10)2 = $54. 11. Financial Calculator solution: Input 0, 1. 92, 63. 364(2. 304 + 61. 06) into the cash flow register, input I = 10, PV = ? PV = $54. 11. Part 2: Expected dividend yield: D1/P0 = $1. 92/$54. 11 = 3. 55%. Capital gains yield: First, find [pic], which equals the sum of the present values of D2 and [pic] discounted for one year. [pic] Financial Calculator solution: Input 0, 63. 364(2. 304 + 61. 6) into the cash flow register, input I = 10, PV = ? PV = $57. 60. Second, find the capital gains yield: [pic] Dividend yield = 3. 55% Capital gains yield = 6. 45 10. 00% = ks. b. Due to the longer period of supernormal growth, the value of the stock will be higher for each year. Although the total return will remain the same, ks = 10%, the distribution between dividend yield and capital g ains yield will differ: The dividend yield will start off lower and the capital gains yield will start off higher for the 5-year supernormal growth condition, relative to the 2-year supernormal growth state. The dividend yield will increase and the capital gains yield will decline over the 5-year period until dividend yield = 4% and capital gains yield = 6%. c. Throughout the supernormal growth period, the total yield will be 10 percent, but the dividend yield is relatively low during the early years of the supernormal growth period and the capital gains yield is relatively high. As we near the end of the supernormal growth period, the capital gains yield declines and the dividend yield rises. After the supernormal growth period has ended, the capital gains yield will equal gn = 6%. The total yield must equal ks = 10%, so the dividend yield must equal 10% – 6% = 4%. d. Some investors need cash dividends (retired people), while others would prefer growth. Also, investors must pay taxes each year on the dividends received during the year, while taxes on capital gains can be delayed until the gain is actually realized. 8-24a. ks = kRF + (kM – kRF)b = 11% + (14% – 11%)1. 5 = 15. 5%. [pic] = D1/(ks – g) = $2. 25/(0. 155 – 0. 05) = $21. 43. b. ks = 9% + (12% – 9%)1. 5 = 13. 5%. [pic] = $2. 25/(0. 135 – 0. 05) = $26. 47. c. ks = 9% + (11% – 9%)1. 5 = 12. 0%. [pic] = $2. 25/(0. 12 – 0. 5) = $32. 14. d. New data given: kRF = 9%; kM = 11%; g = 6%, b = 1. 3. ks = kRF + (kM – kRF)b = 9% + (11% – 9%)1. 3 = 11. 6%. [pic] = D1/(ks – g) = $2. 27/(0. 116 – 0. 06) = $40. 54. 8-25a. Old ks = kRF + (kM – kRF)b = 9% + (3%)1. 2 = 12. 6%. New ks = 9% + (3%)0. 9 = 11. 7%. Old price: [pic] New price: [pic] Since the new price is lower than the old price, the expansion in consumer products should be rejected. The decrease in risk is not sufficient to offset the decline in profitability and the reduced growth rate. b. POld = $38. 21. PNew = [pic]. Solving for ks we have the following: $38. 1= [pic] $2. 10= $38. 21(ks) – $1. 9105 $4. 0105= $38. 21(ks) ks= 0. 10496. Solving for b: 10. 496% = 9% + 3%(b) 1. 496% = 3%(b) b = 0. 49865. Check: ks = 9% + (3%)0. 49865 = 10. 496%. [pic] = [pic] = $38. 21. Therefore, only if management’s analysis concludes that risk can be lowered to b = 0. 49865, or approximately 0. 5, should the new policy be put into effect. SPREADSHEET PROBLEM 8-26The detailed solution for the spreadsheet problem is available both on the instructor’s resource CD-ROM and on the instructor’s side of South-Western’s web site, http://brigham. swlearning. com. INTEGRATED CASE Mutual of Chicago Insurance Company Stock Valuation 8-27ROBERT BALIK AND CAROL KIEFER ARE SENIOR VICE-PRESIDENTS OF THE MUTUAL OF CHICAGO INSURANCE COMPANY. THEY ARE CO-DIRECTORS OF THE COMPANY’S PENSION FUND MANAGEMENT DIVISION, WITH BALIK HAVING RESPONSIBILITY FOR FIXED INCOME SECURITIES (PRIMARILY BONDS) AND KIEFER BEING RESPONSIBLE FOR EQUITY INVESTMENTS. A MAJOR NEW CLIENT, THE CALIFORNIA LEAGUE OF CITIES, HAS REQUESTED THAT MUTUAL OF CHICAGO PRESENT AN INVESTMENT SEMINAR TO THE MAYORS OF THE REPRESENTED CITIES, AND BALIK AND KIEFER, WHO WILL MAKE THE ACTUAL PRESENTATION, HAVE ASKED YOU TO HELP THEM. TO ILLUSTRATE THE COMMON STOCK VALUATION PROCESS, BALIK AND KIEFER HAVE ASKED YOU TO ANALYZE THE BON TEMPS COMPANY, AN EMPLOYMENT AGENCY THAT SUPPLIES WORD PROCESSOR OPERATORS AND COMPUTER PROGRAMMERS TO BUSINESSES WITH TEMPORARILY HEAVY WORKLOADS. YOU ARE TO ANSWER THE FOLLOWING QUESTIONS. A. DESCRIBE BRIEFLY THE LEGAL RIGHTS AND PRIVILEGES OF COMMON STOCKHOLDERS. ANSWER:[SHOW S8-1 THROUGH S8-5 HERE. ] THE COMMON STOCKHOLDERS ARE THE OWNERS OF A CORPORATION, AND AS SUCH THEY HAVE CERTAIN RIGHTS AND PRIVILEGES AS DESCRIBED BELOW. 1. OWNERSHIP IMPLIES CONTROL. THUS, A FIRM’S COMMON STOCKHOLDERS HAVE THE RIGHT TO ELECT ITS FIRM’S DIRECTORS, WHO IN TURN ELECT THE OFFICERS WHO MANAGE THE BUSINESS. 2. COMMON STOCKHOLDERS OFTEN HAVE THE RIGHT, CALLED THE PREEMPTIVE RIGHT, TO PURCHASE ANY ADDITIONAL SHARES SOLD BY THE FIRM. IN SOME STATES, THE PREEMPTIVE RIGHT IS AUTOMATICALLY INCLUDED IN EVERY CORPORATE CHARTER; IN OTHERS, IT IS NECESSARY TO INSERT IT SPECIFICALLY INTO THE CHARTER. B. 1. WRITE OUT A FORMULA THAT CAN BE USED TO VALUE ANY STOCK, REGARDLESS OF ITS DIVIDEND PATTERN. ANSWER:[SHOW S8-6 HERE. ] THE VALUE OF ANY STOCK IS THE PRESENT VALUE OF ITS EXPECTED DIVIDEND STREAM: [pic] = [pic] HOWEVER, SOME STOCKS HAVE DIVIDEND GROWTH PATTERNS THAT ALLOW THEM TO BE VALUED USING SHORT-CUT FORMULAS. B. 2. WHAT IS A CONSTANT GROWTH STOCK? HOW ARE CONSTANT GROWTH STOCKS VALUED? ANSWER:[SHOW S8-7 AND S8-8 HERE. ] A CONSTANT GROWTH STOCK IS ONE WHOSE DIVIDENDS ARE EXPECTED TO GROW AT A CONSTANT RATE FOREVER. â€Å"CONSTANT GROWTH† MEANS THAT THE BEST ESTIMATE OF THE FUTURE GROWTH RATE IS SOME CONSTANT NUMBER, NOT THAT WE REALLY EXPECT GROWTH TO BE THE SAME EACH AND EVERY YEAR. MANY COMPANIES HAVE DIVIDENDS THAT ARE EXPECTED TO GROW STEADILY INTO THE FORESEEABLE FUTURE, AND SUCH COMPANIES ARE VALUED AS CONSTANT GROWTH STOCKS. FOR A CONSTANT GROWTH STOCK: D1 = D0(1 + g), D2 = D1(1 + g) = D0(1 + g)2, AND SO ON. WITH THIS REGULAR DIVIDEND PATTERN, THE GENERAL STOCK VALUATION MODEL CAN BE SIMPLIFIED TO THE FOLLOWING VERY IMPORTANT EQUATION: [pic] = [pic] = [pic]. THIS IS THE WELL-KNOWN â€Å"GORDON,† OR â€Å"CONSTANT-GROWTH† MODEL FOR VALUING STOCKS. HERE D1 IS THE NEXT EXPECTED DIVIDEND, WHICH IS ASSUMED TO BE PAID 1 YEAR FROM NOW, kS IS THE REQUIRED RATE OF RETURN ON THE STOCK, AND g IS THE CONSTANT GROWTH RATE. B. 3. WHAT HAPPENS IF A COMPANY HAS A CONSTANT g THAT EXCEEDS ITS ks? WILL MANY STOCKS HAVE EXPECTED g ks IN THE SHORT RUN (THAT IS, FOR THE NEXT FEW YEARS)? IN THE LONG RUN (THAT IS, FOREVER)? ANSWER:[SHOW S8-9 HERE. ] THE MODEL IS DERIVED MATHEMATICALLY, AND THE DERIVATION REQUIRES THAT ks g. IF g IS GREATER THAN ks, THE MODEL GIVES A NEGATIVE STOCK PRICE, WHICH IS NONSENSICAL. THE MODEL SIMPLY CANNOT BE USED UNLESS (1) ks g, (2) g IS EXPECTED TO BE CONSTANT, AND (3) g CAN REASONABLY BE EXPECTED TO CONTINUE INDEFINITELY. STOCKS MAY HAVE PERIODS OF SUPERNORMAL GROWTH, WHERE gS ks; HOWEVER, THIS GROWTH RATE CANNOT BE SUSTAINED INDEFINITELY. IN THE LONG-RUN, g ks. C. ASSUME THAT BON TEMPS HAS A BETA COEFFICIENT OF 1. , THAT THE RISK-FREE RATE (THE YIELD ON T-BONDS) IS 7 PERCENT, AND THAT THE REQUIRED RATE OF RETURN ON THE MARKET IS 12 PERCENT. WHAT IS THE REQUIRED RATE OF RETURN ON THE FIRM’S STOCK? ANSWER:[SHOW S8-10 HERE. ] HERE WE USE THE SML TO CALCULATE BON TEMPS’ REQUIRED RATE OF RETURN: ks= kRF + (kM – kRF)bBon Temps = 7% + (12% – 7%)(1. 2) = 7% + (5%)(1. 2) = 7% + 6% = 13%. D. ASSUME THAT BON TEMPS I S 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 PERCENT RATE. 1. WHAT IS THE FIRM’S EXPECTED DIVIDEND STREAM OVER THE NEXT 3 YEARS? ANSWER:[SHOW S8-11 HERE. ] BON TEMPS IS A CONSTANT GROWTH STOCK, AND ITS DIVIDEND IS EXPECTED TO GROW AT A CONSTANT RATE OF 6 PERCENT PER YEAR. EXPRESSED AS A TIME LINE, WE HAVE THE FOLLOWING SETUP. JUST ENTER 2 IN YOUR CALCULATOR; THEN KEEP MULTIPLYING BY 1 + g = 1. 06 TO GET D1, D2, AND D3: 0 1 2 3 | | | | D0 = 2. 00 2. 12 2. 247 2. 382 1. 88 1. 76 1. 65 . . . D. 2. WHAT IS THE FIRM’S CURRENT STOCK PRICE? ANSWER:[SHOW S8-12 HERE. WE COULD EXTEND THE TIME LINE ON OUT FOREVER, FIND THE VALUE OF BON TEMPS’ DIVIDENDS FOR EVERY YEAR ON OUT INTO THE FUTURE, AND THEN THE PV OF EACH DIVIDEND DISCOUNTED AT k = 13%. FOR EXAMPLE, THE PV OF D1 IS $1. 8761; THE PV OF D2 IS $1. 7599; AND SO FORTH. NOTE THAT THE DIVIDEND PAYMENTS INCREASE WITH TIME, BUT AS LONG AS ks g, THE PRESENT VALUES DECREASE WITH TIME. IF WE EXTENDED THE GRAPH ON OUT FOREVER AND THEN SUMMED THE PVs OF THE DIVIDENDS, WE WOULD HAVE THE VA LUE OF THE STOCK. HOWEVER, SINCE THE STOCK IS GROWING AT A CONSTANT RATE, ITS VALUE CAN BE ESTIMATED USING THE CONSTANT GROWTH MODEL: pic] = [pic] = [pic] = [pic] = $30. 29. D. 3. WHAT IS THE STOCK’S EXPECTED VALUE ONE YEAR FROM NOW? ANSWER:[SHOW S8-13 HERE. ] AFTER ONE YEAR, D1 WILL HAVE BEEN PAID, SO THE EXPECTED DIVIDEND STREAM WILL THEN BE D2, D3, D4, AND SO ON. THUS, THE EXPECTED VALUE ONE YEAR FROM NOW IS $32. 10: [pic] = [pic] = [pic] = [pic] = $32. 10. D. 4. WHAT ARE THE EXPECTED DIVIDEND YIELD, THE CAPITAL GAINS YIELD, AND THE TOTAL RETURN DURING THE FIRST YEAR? ANSWER:[SHOW S8-14 HERE. ] THE EXPECTED DIVIDEND YIELD IN ANY YEAR n IS DIVIDEND YIELD = [pic], WHILE THE EXPECTED CAPITAL GAINS YIELD IS CAPITAL GAINS YIELD = [pic] = k – [pic]. THUS, THE DIVIDEND YIELD IN THE FIRST YEAR IS 7 PERCENT, WHILE THE CAPITAL GAINS YIELD IS 6 PERCENT: TOTAL RETURN = 13. 0% DIVIDEND YIELD = $2. 12/$30. 29 = 7. 0% CAPITAL GAINS YIELD = 6. 0% E. NOW ASSUME THAT THE STOCK IS CURRENTLY SELLING AT $30. 29. WHAT IS THE EXPECTED RATE OF RETURN ON THE STOCK? ANSWER:THE CONSTANT GROWTH MODEL CAN BE REARRANGED TO THIS FORM: [pic] = [pic]. HERE THE CURRENT PRICE OF THE STOCK IS KNOWN, AND WE SOLVE FOR THE EXPECTED RETURN. FOR BON TEMPS: pic] = $2. 12/$30. 29 + 0. 060 = 0. 070 + 0. 060 = 13%. F. WHAT WOULD THE STOCK PRICE BE IF ITS DIVIDENDS WERE EXPECTED TO HAVE ZERO GROWTH? ANSWER:[SHOW S8-15 HERE. ] IF BON TEMPS’ DIVIDENDS WERE NOT EXPECTED TO GROW AT ALL, THEN ITS DIVIDEND STREAM WOULD BE A PERPETUITY. PERPETUITIES ARE VALUED AS SHOWN BELOW: 0 1 2 3 | | | | 2. 00 2. 00 2. 00 1. 77 1. 57 1. 39 . . . P0 = 15. 38 P0 = D/kS = $2. 00/0. 13 = $15. 38. NOTE THAT IF A PREFERRED STOCK IS A PERPE TUITY, IT MAY BE VALUED WITH THIS FORMULA. G. NOW ASSUME THAT BON TEMPS IS EXPECTED TO EXPERIENCE SUPERNORMAL GROWTH OF 30 PERCENT FOR THE NEXT 3 YEARS, THEN TO RETURN TO ITS LONG-RUN CONSTANT GROWTH RATE OF 6 PERCENT. WHAT IS THE STOCK’S VALUE UNDER THESE CONDITIONS? WHAT IS ITS EXPECTED DIVIDEND YIELD AND CAPITAL GAINS YIELD IN YEAR 1? YEAR 4? ANSWER:[SHOW S8-16 THROUGH S8-18 HERE. ] BON TEMPS IS NO LONGER A CONSTANT GROWTH STOCK, SO THE CONSTANT GROWTH MODEL IS NOT APPLICABLE. NOTE, HOWEVER, THAT THE STOCK IS EXPECTED TO BECOME A CONSTANT GROWTH STOCK IN 3 YEARS. THUS, IT HAS A NONCONSTANT GROWTH PERIOD FOLLOWED BY CONSTANT GROWTH. THE EASIEST WAY TO VALUE SUCH NONCONSTANT GROWTH STOCKS IS TO SET THE SITUATION UP ON A TIME LINE AS SHOWN BELOW: 0 1 2 3 4 | | | | | 2. 600 3. 380 4. 394 4. 65764 2. 301 2. 647 3. 045 46. 114 54. 107 SIMPLY ENTER $2 AND MULTIPLY BY (1. 30) TO GET D1 = $2. 60; MULTIPLY THAT RESULT BY 1. 3 TO GET D2 = $3. 38, AND SO FORTH. THEN RECOGNIZE THAT AFTER YEAR 3, BON TEMPS BECOMES A CONSTANT GROWTH STOCK, AND AT THAT POINT [pic] CAN BE FOUND USING THE CONSTANT GROWTH MODEL. pic] IS THE PRESENT VALUE AS OF t = 3 OF THE DIVIDENDS IN YEAR 4 AND BEYOND AND IS ALSO CALLED THE TERMINAL VALUE. WITH THE CASH FLOWS FOR D1, D2, D3, AND [pic] SHOWN ON THE TIME LINE, WE DISCOUNT EACH VALUE BACK TO YEAR 0, AND THE SUM OF THESE FOUR PVs IS THE VALUE OF THE STOCK TODAY, P0 = $54. 107. THE DIVIDEND YIELD IN YEAR 1 IS 4. 80 PERCENT, AND THE CAPITAL GAINS YIELD IS 8. 2 PERCENT: DIVIDEND YIELD = [pic] = 0. 0480 = 4. 8%. CAPITAL GAINS YIELD = 13. 00% – 4. 8% = 8. 2%. DURING THE NONCONSTANT GROWTH PERIOD, THE DIVIDEND YIELDS AND CAPITAL GAINS YIELDS ARE NOT CONSTANT, AND THE CAPITAL GAINS YIELD DOES NOT EQUAL g. HOWEVER, AFTER YEAR 3, THE STOCK BECOMES A CONSTANT GROWTH STOCK, WITH g = CAPITAL GAINS YIELD = 6. 0% AND DIVIDEND YIELD = 13. 0% – 6. 0% = 7. 0%. H. SUPPOSE BON TEMPS IS EXPECTED TO EXPERIENCE ZERO GROWTH DURING THE FIRST 3 YEARS AND THEN TO RESUME ITS STEADY-STATE GROWTH OF 6 PERCENT IN THE FOURTH YEAR. WHAT IS THE STOCK’S VALUE NOW? WHAT IS ITS EXPECTED DIVIDEND YIELD AND ITS CAPITAL GAINS YIELD IN YEAR 1? YEAR 4? ANSWER:[SHOW S8-19 AND S8-20 HERE. ] NOW WE HAVE THIS SITUATION: 0 1 2 3 4 | | | | | 2. 00 2. 0 2. 00 2. 00 2. 12 1. 77 1. 57 1. 39 20. 99 25. 72 = [pic] DURING YEAR 1: DIVIDEND YIELD = [pic] = 0. 0778 = 7. 78%. CAPITAL GAINS YIELD = 13. 00% – 7. 78% = 5. 22%. AGAIN, IN YEAR 4 BON TEMPS BECOMES A CONSTANT GROWTH STOCK; HENCE g = CAPITAL GAINS YIELD = 6. 0% AND DIVIDEND YIELD = 7. 0%. I. FINALLY, ASSUME THAT BON TEMPS’ EARNINGS AND DIVIDENDS ARE EXPECTED TO DECLINE BY A CONSTANT 6 PERCENT PER YEAR, THAT IS, g = -6%. WHY WOULD ANYONE BE WILLING TO BUY SUCH A STOCK, AND AT WHAT PRICE SHOULD IT SELL? WHAT WOULD BE THE DIVIDEND YIELD AND CAPITAL GAINS YIELD IN EACH YEAR? ANSWER:[SHOW S8-21 AND S8-22 HERE. ] THE COMPANY IS EARNING SOMETHING AND PAYING SOME DIVIDENDS, SO IT CLEARLY HAS A VALUE GREATER THAN ZERO. THAT VALUE CAN BE FOUND WITH THE CONSTANT GROWTH FORMULA, BUT WHERE g IS NEGATIVE: [pic] = [pic] = [pic] = [pic] = [pic] = $9. 89. SINCE IT IS A CONSTANT GROWTH STOCK: g = CAPITAL GAINS YIELD = -6. 0%, HENCE: DIVIDEND YIELD = 13. 0% – (-6. 0%) = 19. 0%. AS A CHECK: DIVIDEND YIELD = [pic] = 0. 190 = 19. 0%. THE DIVIDEND AND CAPITAL GAINS YIELDS ARE CONSTANT OVER TIME, BUT A HIGH (19. 0 PERCENT) DIVIDEND YIELD IS NEEDED TO OFFSET THE NEGATIVE CAPITAL GAINS YIELD. J. BON TEMPS EMBARKS ON AN AGGRESSIVE EXPANSION THAT REQUIRES ADDITIONAL CAPITAL. MANAGEMENT DECIDES TO FINANCE THE EXPANSION BY BORROWING $40 MILLION AND BY HALTING DIVIDEND PAYMENTS TO INCREASE RETAINED EARNINGS. THE PROJECTED FREE CASH FLOWS FOR THE NEXT THREE YEARS ARE -$5 MILLION, $10 MILLION, AND $20 MILLION. AFTER THE THIRD YEAR, FREE CASH FLOW IS PROJECTED TO GROW AT A CONSTANT 6 PERCENT. THE OVERALL COST OF CAPITAL IS 10 PERCENT. WHAT IS BON TEMPS’ TOTAL VALUE? IF IT HAS 10 MILLION SHARES OF STOCK AND $40 MILLION TOTAL DEBT, WHAT IS THE PRICE PER SHARE? ANSWER:[SHOW S8-23 THROUGH S8-28 HERE. 0 1 2 3 4 | | | | | -5 10 20 21. 20 $ -4. 545 8. 264 15. 026 398. 197 $416. 942 = TOTAL VALUE VALUE OF EQUITY = TOTAL VALUE – DEBT = $416. 94 – $40 = $376. 94 MILLION. PRICE PER SHARE = $376. 94/10 = $37. 69. K. WHAT DOES MARKET EQUILIBRIUM MEAN? ANSWER:[SHOW S8-29 AND S8-30 HERE. ] EQUILIBRIUM MEANS STABLE, NO TENDENCY TO CHANGE. MARKET EQUILIBRIUM MEANS THAT PRICES ARE STABLE–AT ITS CURRENT PRICE, THERE IS NO GENERAL TENDENCY FOR PEOPLE TO WANT TO BUY OR TO SELL A SECURITY THAT IS IN EQUILIBRIUM. ALSO, WHEN EQUILIBRIUM EXISTS, THE EXPECTED RATE OF RETURN WILL BE EQUAL TO THE REQUIRED RATE OF RETURN: [pic] = D1/P0 + g = k = kRF + (kM – kRF)b. L. IF EQUILIBRIUM DOES NOT EXIST, HOW WILL IT BE ESTABLISHED? ANSWER:[SHOW S8-31 AND S8-32 HERE. ] SECURITIES WILL BE BOUGHT AND SOLD UNTIL THE EQUILIBRIUM PRICE IS ESTABLISHED. M. WHAT IS THE EFFICIENT MARKETS HYPOTHESIS, WHAT ARE ITS THREE FORMS, AND WHAT ARE ITS IMPLICATIONS? ANSWER:[SHOW S8-33 THROUGH S8-37 HERE. ] THE EMH IN GENERAL IS THE HYPOTHESIS THAT SECURITIES ARE NORMALLY IN EQUILIBRIUM AND ARE â€Å"PRICED FAIRLY,† MAKING IT IMPOSSIBLE TO â€Å"BEAT THE MARKET. WEAK-FORM EFFICIENCY SAYS THAT INVESTORS CANNOT PROFIT FROM LOOKING AT PAST MOVEMENTS IN STOCK PRICES–THE FACT THAT STOCKS WENT DOWN FOR THE LAST FEW DAYS IS NO REASON TO THINK THAT THEY WILL GO UP (OR DOWN) IN THE FUTURE. THIS FORM HAS BEEN PROVEN PRETTY WELL BY EMPIRICAL TESTS, EVEN THOUGH PEOPLE STILL EMPLOY â€Å"TECHNICAL ANALYSIS. † S EMISTRONG-FORM EFFICIENCY SAYS THAT ALL PUBLICLY AVAILABLE INFORMATION IS REFLECTED IN STOCK PRICES, HENCE THAT IT WON’T DO MUCH GOOD TO PORE OVER ANNUAL REPORTS TRYING TO FIND UNDERVALUED STOCKS. THIS ONE IS (WE THINK) LARGELY TRUE, BUT SUPERIOR ANALYSTS CAN STILL OBTAIN AND PROCESS NEW INFORMATION FAST ENOUGH TO GAIN A SMALL ADVANTAGE. STRONG-FORM EFFICIENCY SAYS THAT ALL INFORMATION, EVEN INSIDE INFORMATION, IS EMBEDDED IN STOCK PRICES. THIS FORM DOES NOT HOLD–INSIDERS KNOW MORE, AND COULD TAKE ADVANTAGE OF THAT INFORMATION TO MAKE ABNORMAL PROFITS IN THE MARKETS. TRADING ON THE BASIS OF INSIDER INFORMATION IS ILLEGAL. N. PHYFE COMPANY RECENTLY ISSUED PREFERRED STOCK. IT PAYS AN ANNUAL DIVIDEND OF $5, AND THE ISSUE PRICE WAS $50 PER SHARE. WHAT IS THE EXPECTED RETURN TO AN INVESTOR ON THIS PREFERRED STOCK? ANSWER:[SHOW S8-38 AND S8-39 HERE. ] [pic]= [pic] = [pic] = 10%. ———————– ks = 15% gn = 6% ( 1/(1. 15)3 ( 1/(1. 13)3 ( 1/(1. 13)2 ( 1/1. 13 gs = 50% gn = 8% [pic] ks = 12% gs = 15% gn = 5% WACC = 10% [pic] = 30. 29 = [pic] g = 0% g = 0% g = 0% gn = 6% ks = 13% [pic] = $66. 54 = [pic] gs = 30% gs = 30% gs = 30% gn = 6% ks = 13% g = 0% ks = 13% g = 6% ks = 13% ks = 10% gs = 20% gs = 20% gn = 5% WACC = 12% WACC = 12% gn = 7% [pic] WACC = 13% gn = 7% 530 = [pic] ( 1/(1. 15)4 ( 1/(1. 15)5 ks = 12% ( 1/1. 13 ( 1/(1. 13)2 ( 1/(1. 13)3 ( 1/(1. 13)2 ( 1/(1. 13)2 ( 1/1. 13 ( 1/(1. 13)2 ( 1/(1. 13)3 ( 1/(1. 13)3 ( 1/1. 13 ( 1/1. 13 (%89 How to cite Financial Management Chapter 8 K, Essay examples