Suppose Temp Force 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 In year 4?

MINI CASE 

Sam Struthers and Shawna Tibbs are senior vice presidents of the Mutual of Seattle. They are co-directors of the company’s pension fund management division, with Struthers having responsibility for fixed income securities (primarily bonds) and Tibbs being responsible for equity investments. A major new client, the Northwestern Municipal League, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Stretcher and Tibbs, who will make the actual presentation, have asked you to help them. To illustrate the common stock valuation process, Struthers and Tibbs have asked you to analyze the Temp Force 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.