FIN300 Lecture 6 - Stock Valuation - FIN 300 Stock...

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FIN 300 Stock Valuation
Stock Valuation Value of a share of CS = PV of future cash flows = PV dividends + PV(future price)
Rights of the common stockholder: 1) Voting - elect the board of directors (proxy) 2) Pre-emptive right 3) Liquidation value 4) Dividends
Some firms may have different classes of common stock A shares B shares
Preferred stock is considered a “hybrid” security with some of the following features: 1. Cumulative-all dividends in arrears must be paid before any common stock dividend can be paid 2. Participating-the preferred stockholder may share in an extra or bonus dividend with the common stockholder 3. Callable-the firm can notify the stockholder and force them to sell back the stock (retire the stock) 4. Convertible-the preferred stockholder may convert their preferred stock into a specified number of common stock shares 5. Terms-the dividend is usually fixed and based on par
Long-term securities (stocks and bonds) are traded in the Capital Markets Short-term securities (T-bills and commercial paper) are traded in the Money Market

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