Chapter 7 - CHAPTER 7 Valuing Stocks Topics Covered Stocks...

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Unformatted text preview: CHAPTER 7 Valuing Stocks Topics Covered Stocks and the Stock Market Market Values, Book Values, and Liquidation Values Valuing Common Stocks Simplifying the Dividend Discount Model Growth Stocks and Income Stocks There Are No Free Lunches on Wall Street Market Anomalies and Behavioral Finance Stocks & Stock Market Primary Market - Market for the sale of new securities by corporations. Initial Public Offering (IPO)- First offering of stock to the general public. Seasoned Issue- Sale of new shares by a firm that has already been through an IPO Stocks & Stock Market Common Stock- Ownership shares in a publicly held corporation. Represents ownership Ownership implies control Stockholders elect directors Directors elect management Managements goal: Maximize the stock price Preferred Stock Hybrid security. Like bonds, preferred stockholders receive a fixed dividend that must be paid before dividends are paid to common stockholders. However, companies can omit preferred dividend payments without fear of pushing the firm into bankruptcy. Stocks & Stock Market Secondary Market- Market in which previously issued securities are traded among investors. Dividend- Periodic cash distribution from the firm to the shareholders. P/E Ratio- Price per share divided by earnings per share. Stocks & Stock Market Stocks & Stock Market The difference between a firms actual market value and its liquidation or book value is attributable to its going concern value. Factors of Going Concern Value 1. Extra earning power 2. Intangible assets 3. Value of future investments Stocks & Stock Market Book Value- Net worth of the firm according to the balance sheet. Liquidation Value- Net proceeds that could be realized by selling the firms assets and paying off its creditors....
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Chapter 7 - CHAPTER 7 Valuing Stocks Topics Covered Stocks...

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