Chapter_09 - 9-19-1Click to edit Master subtitle...

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Unformatted text preview: 9-19-1Click to edit Master subtitle styleCHAPTER 9Stocks and Their Valuation nFeatures of common stocknDetermining common stock values Dividends Corporate Value Method Free Cash Flown Stock Market Equilibrium9-2Debt securities represent a legally enforceable claim.Debt securities offer fixed or floating cash flows.Bondholders do not have any control over how the company is run.Debt versus Equity: Debt9-3Debt and equity have substantially different marginal benefits and marginal costs.Common stockholders are residual claimants.No claim to earnings or assets until all senior claims are paid in fullHigh risk, but historically also high returnStockholders have voting rights on important company decisions. Debt versus Equity: Equity9-4Preferred stock have some features similar to debt and other features similar to equity. nClaim on assets and cash flow is senior to common stock.nDividend payments are not tax deductible.Promises a fixed annual dividend payment, though this is not legally enforceable. Preferred stockholders usually do not have voting rights.Preferred Stock9-5Facts about common stocknRepresents ownershipnOwnership implies controlnStockholders elect directorsnDirectors elect managementnManagements goal: Maximize the stock pricemaximize 9-6Common stockholders voting rights can be exercised in person or by proxy.Most US corporations practice majority voting, with one vote attached to each common share. Proxy fight: An attempt to gain control of a firm by soliciting enough votes to unseat existing directors.Shareholders have no legal rights to receive dividends.Rights of Common Stockholders9-7Preferred stock is an equity security that is expected to pay a fixed annual dividend indefinitely....
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Chapter_09 - 9-19-1Click to edit Master subtitle...

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