4.Chapter 08

4.Chapter 08 - Chapter 8: Common Stock Valuation Chapter...

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Chapter 8: Common Stock Valuation
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Chapter Outline Some Features of Common and Preferred Stocks The Stock Markets Common Stock Valuation
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Features of Common Stock Voting Rights Proxy voting Classes of stock Other Rights Share proportionally in declared dividends Share proportionally in remaining assets during liquidation Preemptive right – first shot at new stock issue to maintain proportional ownership if desired
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Public Placement of Stock Initial public offerings (IPOs) First-time offering of shares to the public Firm must provide information to public Registration statement to SEC Prospectus Firm is assisted by an investment banker Performance of IPOs Price generally rises on first day Longer-term performance of IPOs is poor
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Dividend Characteristics Dividends are not a liability of the firm until a dividend has been declared by the Board Consequently, a firm cannot go bankrupt for not declaring dividends Dividends and Taxes Dividend payments are not considered a business expense; therefore, they are not tax- deductible Dividends received by individuals have historically been taxed as ordinary income Dividends received by corporations have a minimum 70% exclusion from taxable income
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Features of Preferred Stock Dividends Stated dividend that must be paid before dividends can be paid to common stockholders Dividends are not a liability of the firm and preferred dividends can be deferred indefinitely Most preferred dividends are cumulative – any missed preferred dividends have to be paid before common dividends can be paid Preferred stock does not generally carry voting rights
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Stock Market Dealers vs. Brokers New York Stock Exchange (NYSE) Members Operations Floor activity NASDAQ Not a physical exchange, but a computer- based quotation system Large portion of technology stocks
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Stock Quotations Some relevant information about stocks is available in the newspaper each day Yld% is the dividend yield – how much return is earned by receiving dividends Div Yield = Dividend / Current Price 52 Weeks Yld Vol Net
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This note was uploaded on 04/30/2011 for the course MBA 862 taught by Professor Phi during the Fall '11 term at Clemson.

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4.Chapter 08 - Chapter 8: Common Stock Valuation Chapter...

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