Stocks and Their Valuationv必看课件资料.ppt

CHAPTER 5Stocks and Their Valuation Features of common stock Determining common stock values Efficient markets Preferred stock Common Stock: Owners, Directors, and Managers Represents ownership. Ownership implies control. Stockholders elect directors. Directors hire management. Since managers are “agents” of shareholders, their goal should be: Maximize stock price. What’s classified stock? How might classified stock be used? Classified stock has special provisions. Could classify existing stock as founders’ shares, with voting rights but dividend restrictions. New shares might be called “Class A” shares, with voting restrictions but full dividend rights. What is tracking stock? The dividends of tracking stock are tied to a particular division, rather than the company as a whole. Investors can separately value the divisions. Its easier to compensate division managers with the tracking stock. But tracking stock usually has no voting rights, and the financial disclosure for the division is not as regulated as for the company. When is a stock sale an initial public offering (IPO)? What is a seasoned equity offering (SEO)? Different Approaches for Valuing Common Stock Dividend growth model Using the multiples of comparable firms Free cash flow method (covered in Chapter 12) For a constant growth stock, What happens if g rs? If rs g, get negative stock price, which is nonsense. We can’t use model unless (1) g ? rs and (2) g is expected to be constant forever. Because g must be a long-term growth rate, it cannot be ? rs. Assume beta = 1.2, kRF = 7%, and RPM = 5%. What is the required rate of return on the firm’s stock? D0 was $2.00 and g is a constant 6%. Find the expected dividends for the next 3 years, and their PVs. rs = 13%. What’s the stock’s market value? D0 = 2.00, rs = 13%, g = 6%. What is the stock’s market value one year from now, P1? D1 will have been paid, so expected dividends are D2, D3, D4 and so on. Thus, Find the expected dividend yield