FFM12,_ch_09, IM_rev 01-08-09

FFM12,_ch_09, IM_rev 01-08-09 - Chapter 9 Stocks and Their...

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Unformatted text preview: Chapter 9 Stocks and Their Valuation Learning Objectives After reading this chapter, students should be able to: Discuss the legal rights of stockholders. Explain the distinction between a stocks price and its intrinsic value. Identify the two models that can be used to estimate a stocks intrinsic value: the discounted dividend model and the corporate model. List the key characteristics of preferred stock and explain how to estimate the value of preferred stock. Chapter 9: Stocks and Their Valuation Learning Objectives 211 Lecture Suggestions This chapter provides important and useful information on common and preferred stocks. Moreover, the valuation of stocks reinforces the concepts covered in Chapters 5, 7, and 8, so Chapter 9 extends and reinforces concepts discussed in those chapters. We begin our lecture with a discussion of the characteristics of common stocks and how stocks are valued in the market. Models are presented for valuing constant growth stocks, zero growth stocks, and nonconstant growth stocks. We conclude the lecture with a discussion of preferred stocks. What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case solution for Chapter 9, which appears at the end of this chapter solution. For other suggestions about the lecture, please see the Lecture Suggestions in Chapter 2, where we describe how we conduct our classes. DAYS ON CHAPTER: 3 OF 58 DAYS (50-minute periods) 212 Lecture Suggestions Chapter 9: Stocks and Their Valuation Answers to End-of-Chapter Questions 9-1 a. The average investor of a firm traded on the NYSE is not really interested in maintaining his or her proportionate share of ownership and control. If the investor wanted to increase his or her ownership, the investor could simply buy more stock on the open market. Consequently, most investors are not concerned with whether new shares are sold directly (at about market prices) or through rights offerings. However, if a rights offering is being used to effect a stock split, or if it is being used to reduce the underwriting cost of an issue (by substantial underpricing), the preemptive right may well be beneficial to the firm and to its stockholders. b. The preemptive right is clearly important to the stockholders of closely held (private) firms whose owners are interested in maintaining their relative control positions....
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This note was uploaded on 07/27/2011 for the course ACCT 351A taught by Professor Robertwong during the Spring '11 term at University of San Francisco.

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FFM12,_ch_09, IM_rev 01-08-09 - Chapter 9 Stocks and Their...

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