FIN 300 Stock Valuation Notes .docx - FIN 300 Stock...

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FIN 300 Stock Valuation Notes SV 1 Value of a share of CS = PV of future cash flows =PV Dividends + PV (future price) Rights of the common stockholder : 1. Voting-elect board of directors (proxy) 2. Pre-emptive right 3. Liquidation 4. Dividends Some firms may have different classes of common stock -A shares -B shares Preferred stock is considered a “hybrid” security w/ 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 stare in an extra or bonus dividend w/ common stockholder 3. Callable – the firm can notify the stock holder and force them to sell back the stock (retire the stock) 4. Convertible – the preferred stockholder may convert their preferred stock into a specified # of CS shares

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