FIN 300 Lect notes5 BB - STOCK VALUATION Value of a share...

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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. _________-all dividends in arrears must be paid before any common stock dividend can be paid 2. __________-the preferred stockholder may share in an extra or bonus dividend with the common stockholder 3. _______-the firm can notify the stockholder and force them to sell back the stock (retire the stock) 4. __________-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 Primary market vs secondary market Preferred Stock Valuation:

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