公司理财(双语)5The Value of Common Stocks.pptVIP

NASDAQ Dealer Markets Dealer: maintains an inventory and stands ready to trade at quoted bid (price at which they will buy) and ask (price at which they will sell) prices. Make their profit from the difference between the bid and ask prices Over the counter Stock Market Reporting The PV of Common Stocks The value of any asset is the present value of its expected future cash flows. Stock ownership produces cash flows from: Dividends Capital Gains Valuation of Different Types of Stocks Zero Growth Constant Growth Differential Growth Case 1: Zero Growth Assume that dividends will remain at the same level forever, we will then value the stock as a PERPETUITY. Case 2: Constant Growth Constant Growth Example Suppose Big D, Inc., just paid a dividend of $.50. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk level, how much should the stock be selling for? P0 = .50(1+.02) / (.15 - .02) = $3.92 Case 3: Differential Growth Assume that dividends will grow at different rates in the foreseeable future and then will grow at a constant rate thereafter. To value a Differential Growth Stock, we need to: Estimate future dividends in the foreseeable future. Estimate the future stock price when the stock becomes a Constant Growth Stock (case 2). Compute the total present value of the estimated future dividends and future stock price at the appropriate discount rate. Valuing Common Stocks Consider xyz Company, which is enjoying rapid growth from the introduction of its new backrub ointment. The dividend for a share of xyz’s stock a year from today will be $1.15. During the next four years, the dividend will grow at 15 percent per year (g1 = 15%). After that, growth (g2) will be equal to 10 percent per year. Calculate the present value of a share of stock if the required return (R) is 15 percent. Valuing Common Stocks We need to apply a two-step process to discount these dividends. We first calculate the presen