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The purpose of this assignment is to explain core concepts related to stocks and to analyze the ethical implications of decisions and promote ethical standards within organizations. Read the Chapter 7 Mini Case on pages 339-341 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a through d. Using the mini case information, write a 250-500 word report presenting potential ethical issues that may arise from expanding into other related fields. In your discussion, proactively strategize about possible expansion by explaining opportunities to promote ethical standards within your organization.

Mini case 4

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Youremployer,amid-sizedhumanresourcesmanagementcompany,isconsidering expansionintorelatedfields,includingtheacquisitionofTempForceCompany,anemploymentagencythatsupplieswordprocessoroperatorsandcomputerprogrammerstobusinesseswithtemporaryheavyworkloads.YouremployerisalsoconsideringthepurchaseofBigger-staff&McDonald(B&M),aprivatelyheldcompanyownedbytwofriends,eachwith5millionsharesofstock.B&Mcurrentlyhasfreecashflowof$24million,whichisexpectedtogrowataconstantrateof5%.B&M’sfinancialstatementsreportshort-terminvestmentsof$100million,debtof$200million,andpreferredstockof$50million.B&M’sweightedaveragecostofcapital(WACC)is11%.Answerthefollowingquestions.

  1. Whatisfreecashflow(FCF)?Whatistheweightedaveragecostofcapital?Whatisthefreecashflowvaluationmodel?
  2. Useapiecharttoillustratethesourcesthatcompriseahypotheticalcompany’stotalvalue.Usinganotherpiechart,showtheclaimsonacompany’svalue.Howisequityaresidualclaim?
  3. IfgLWACC,whatisaformulaforthepresentvalueofexpectedfreecashflowswhendiscountedattheWACC?IfthemostrecentfreecashflowisexpectedtogrowataconstantrateofgLforever(andgLWACC),what isaformulaforthepresentvalueofexpectedfreecashflowswhendiscountedat theWACC?

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