exam 3 notecard.docx - Ch 9 basic rights that accompany...

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Ch. 9 basic rights that accompany ownership of common stock: control of the firm, preemptive right: gives common stockholders the right to purchase (on a proportional basis) new issues of common stock (2 purposes: prevents management from issuing stock & buying it themselves, and protects stockholders from dilution of value), stockholders elect directors and directors elect managers; A proxy is a doc giving one person the authority to act for another, typically the power to vote shares of common stock; a proxy fight is an attempt by a person/group to gain control of a firm using proxies; a takeover is when a person/group succeeds in ousting current management; a poison pill provision allows stockholders of a firm that is taken over by another firm to buy shares in the 2 nd firm @ a reduced price; founders shares are classified stock owned by the firm’s founders that enables them to maintain control over the company w/o having to own a majority of stock; the market price is simply the current market price, while the intrinsic value is the “true” value of the company’s stock and cannot be directly observed (must be estimated); Market equilibrium is when a stock’s market price=stock’s intrinsic value; DIVIDEND discount model: Use DDM if you have stable distribution policy. D(t)=the dividend a
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