Analysis of Temp Force Company a. Legal Rights and privileges of common Stockholders

Common Stockholders have the right to elect its directors, who in urn elect the officers who will manage the business. Federal Law says there should be an election of directors usually once a year to elect with vote taken at an annual meeting. Each share of stock has one vote. Stockholders can show up to the meeting and vote in person, but they can transfer their right to vote to a proxy. Common Stockholders have the preemptive right to purchase any additional shares sold by the firm It enables current stockholders to maintain control and prevents a transfer of wealth from current stockholders to new stockholders.

b. Valuation of Stocks (1) Write out a formula that can be used to value any stock, regardless of its dividend pattern.
Value of stock = P0 = PV of expected future dividends
P0= D1(1+rs)1 + D2(1+rs)2+ … + D∞(1+rs)1∞ (2) What is a constant growth stock? How are constant growth stocks valued?
A constant growth stock is one in which the stream of dividends is expected to grow at a constant rate. A constant growth stock can be valued using the constant growth model (Gordon model) shown below.
P0= D1rs-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)?
If a company’s g is greater than their expected rs the constant growth model cannot be used. The result would be a stock price which is infinite, which can never be true. For companies such as these, the normal Stock valuation formula can be used instead.
P0= D1(1+rs)1 + D2(1+rs)2+ … + D∞(1+rs)1∞
Many companies experience a period of supernormal growth in the first few years of existence. After this period they fall back to a constant growth