Finance Stock Valuation
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One of the fundemental rights of common stockholders is to elect a firm's ___, who in turn elect officers who manage the business.
If a stockholder cannot vote in person, particpation in annual meetings is still possible through a ___.
The preemptive right protects stockholders from a loss of ___ as well as ___ of market value from the sales of shares below market value.
When common stock is divided into classes, this classification differentiats who receives ___ and the ___ ___ ___.
Like other financial assets, the value of common stock is the ___ value of future cash streams.
The cash flow stream (expected rate of return)expected from a common stock consists of a ___ yield and a ___ ___ yield.
Capital Gains Yield
- (P1(hat) - P0) / P0
If the Future Growth Rate of dividends is expected to be ___, then the rate of return is simply the ___ yield.
Investors always expect a ___ return on stock investments, but in some years ___ returns are possible.
Preferred stock is similar to ___ and ___ stock in other ways.
If earnings are poor, an outside group may try to take control of a business in order overthrow management, this is called ___ ___.
A ___ ___ makes a possible aquisition unattractive and wards off hostile takeover attempts.
A zero growth stock can be thought of as a ____.
P0(hat) = Dividend / rs
rs = discount rate
Common stock that is given a special designation is called ___ stock.
The ___ investor is a representative investor whose actions reflect the beliefs of those people who are currently trading a stock and determnines a stock price.
___ or ___ growth firms are in the part of their life cycle where they grow much faster than the economy.
The ___ or ___ date is the date when the growth rate becomes constant.
The ___ valuation model that is used when a firm has no history of dividends or the value of a division in a larger firm.
___ ___ ___ is the cash generated before making any payments to common and preferred stock holders, and bondholders, so it is available to all investors.
free cash flow
___ shares are stock owned by the firms founders that have sole voting rights but restricted dividends for a specified number of years.
The constant growth model is used when companies are ___ and have a ___ history of growth and future expectations.
The corporate valuation model discounts a firms FCF at the ___ to determine the firms value.
In equilibrium, 2 things must hold:
1. The expected rate of return as seen by the marginal investor must equal its ___ price.
2. Actual market price must equal its ___ value as estimated by the marginal investor.
A necessary condition of the constant growth model is that rs is ___ than g.
Value of stock formula for constant growth
P0(hat) = D1 / rs - g
Value of a dividend for a given year formula.
Dt = D0(1+g)t
Capital gains yield formula
1. Find p(hat) for next year
2. Subtract from this years p. (this is capital gain)
3. CGY = capital gain / beginning stock price
Horizon Value formula
Pn(hat) = Dividend (Year +1) / (rs - g)
= DN(1+ g) / (rs -g)
Valuation using FCF approach formula
V = FCF(1+g) / (WACC - g)
Value of preferred stock
Vps = Dps / rps
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