云财公司理财Valuation of common stock.doc

Valuation of common stock 201005000947 国会10-1班 傅玲冬 As we all know ,the valuation of the common stock is very important not only for the company itself but also for the investors,shareholders.The valuation of the common stock,simply say the price of the stock issued by the firm is the mirror of the company,which reflecting the condition of the firm.And the choice of the investors. As for the valuation of the common stock,there are many views in academy. The standpoint of Dividend Discount Model put forward by Williams in 1938, was abbreviated as DDM Williams’s dividend discount model tell us that Where is the estimate of value, is the dividend in period t and is the discount rate applicable in period t. The standpoint of Gordon Dividend Growth Model put forward by Gordon = Where is the dividend in the first year ,g is the expected growth rate in dividends for the future. and k and g are supposed to be constant.Although Gordon Dividend Growth Model is widely used in the valuation of the common stock,there are some assuptions such as the the dividends are expected to grow at a constant rate in the future.I think in the small business,it is difficult to come ture. Nonconstant growth valuation model =present value of expected dividends during period of nonconstant growth+present value of the expected stock price at the end of the nonconstant growth period. However the inner idea is the same with the above two models.Using time value of money,compound. The common stockholders are the owners of the firm. They have the right to vote on important matters to the firm such as the election of the Board of Directors. Preferred stock.On the other hand, issuing common stock is an effective form of financing. The common stockholders have a residual claim against the assets and cash flows of the firm. That is, the common stockholders have a claim against whatever assets remain after the debtholders and preferred stockholders have been paid. Moreover, the