Chapter 09 w Learning Obj

Chapter 09 w Learning Obj - Chapter 9 Stocks and Their...

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    9-1 Chapter 9 - Stocks and Their Valuation Learning Objectives After reading this chapter, students should be able to: Identify some of the more important rights that come with stock ownership and define the  following terms:  proxy, proxy fight, takeover, and preemptive right. Briefly explain why classified stock might be used by a corporation and what founders’  shares are. Determine the value of a share of common stock when:  (1) dividends are expected to grow  at some constant rate, (2) dividends are expected to remain constant (zero growth), and (3)  dividends are expected to grow at some supernormal, or nonconstant, growth rate. Calculate the expected rate of return on a constant growth stock. Apply the total company (corporate valuation) model to value a firm in situations where  future dividends are not easily predictable. Explain why a stock’s intrinsic value might differ between the total company model and the  dividend growth model. Explain the following terms:  equilibrium and marginal investor. Identify the two related  conditions that must hold in equilibrium. Explain how changes in the risk-free rate, the market risk premium, the stock’s beta, and  the expected growth rate impact equilibrium stock price. Explain the reasons for investing in international stocks and identify the “bets” an investor is  making when he does invest overseas. Define preferred stock, determine the value of a share of preferred stock, or given its value,  calculate its expected return.
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    9-2 CHAPTER 9 Stocks and Their Valuation  Features of common stock Determining common stock values Preferred stock
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    9-3 Facts about common stock Represents ownership Ownership implies control Stockholders elect directors Directors elect management Management’s goal: Maximize the  stock price
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    9-4 Intrinsic Value and Stock Price Outside investors, corporate insiders, and  analysts use a variety of approaches to  estimate a stock’s intrinsic value (P 0 ). In equilibrium we assume that a stock’s price  equals its intrinsic value. Outsiders estimate intrinsic value to help  determine which stocks are attractive to  buy and/or sell. Stocks with a price below (above) its  intrinsic value are  undervalued   ( overvalued ).
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    9-5 Determinants of Intrinsic Value  and Stock Prices (Figure 1-1)
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    9-6 Different approaches for estimating the  intrinsic value of a common stock Dividend growth model Corporate value model Using the multiples of comparable  firms
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    9-7 Dividend growth model
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Chapter 09 w Learning Obj - Chapter 9 Stocks and Their...

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