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Ch 9 stocks Part II-1

Ch 9 stocks Part II-1 - Chapter 9 Stock Valuation Part II 1...

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1 Chapter 9 Stock Valuation Part II
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2 http://www.ft.com/cms/s/0/72d68b60-4009-11df-8d23-00144feabdc0.html
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3
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4 http://www.nytimes.com/2010/03/29/business/economy/29market.html?scp=1&sq=overvalued%20stocks&st=cse
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5 http://www.nytimes.com/2010/03/14/business/14mark.html?scp=25&sq=portfolio%20risk&st=cse
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6 More News Stories on Stocks March 26, 2010 – The Wisdom of Short Sellers, New York Times http://www.nytimes.com/2010/03/28/business/28stra.html?scp=3&sq=overvalued%20stocks&st=cse April 6, 2008 - Advantages of shorting, Financial Times http://www.ft.com/cms/s/0/0108e48a-0279-11dd-9388-000077b07658.html June 5, 2009 – Poking Holes in the Theory of Markets, New York Times http://www.nytimes.com/2009/06/06/business/06nocera.html?_r=1&scp=1&sq=efficient%20market&st=cse October 10, 2009 - When Emotions Move the Markets, New York Times http://www.nytimes.com/2009/10/11/business/mutfund/11behavior.html?scp=7&sq=efficient%20market&st=cse
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7 More News Stories on Stocks September 14, 2009 – Wall Street’s Math Wizards Forgot a Few Variables, New York Times http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/?scp=11&sq=efficient%20market&st=cse September 2, 2009 – How Did Economists Got It So Wrong?, New York Times http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?sq=efficient%20market&st=cse&scp=12&pagewanted=all
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8 Stock Pricing Pricing Models: DDM, Payout, FCF, Relative Valuation models Market Price of Stock Supply (Company) Factors Macro Factors: •Economic situation •Regulatory environment •Market condition (supply and demand) Micro Factors: •Industry & Firm situation Demand (Investor) Factors •Market Efficiency – Information and competition – Ch 9 •Risk - Risk Aversion, Systematic risk, Risk-Return Tradeoff, Risk Pricing – Ch 10, 11
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9 Stock Valuation Approaches Stock Valuation Cash Flow Valuation Dividend Discount Model Total Payout Model Discounted Free Cash Model Relative Valuation Efficient Market Hypothesis Estimating Dividends (3 ways) Done Done
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10 Stock Valuation – Outline 1 . Stock Basics 2. Intrinsic Valuation of Stock 2A. The Dividend-Discount Model 2A1. Estimating Dividends in the Dividend- Discount Model (3 ways) 2B. Total Payout Model 2C. Free Cash Flow Valuation Model 3. Valuation Based on Comparable Firms 4. Information, Competition, and Stock Prices
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11 Total Payout Model DDM addresses the value of the firm on a per share basis i.e., calculates PPS The level of Dividend per share can be affected by the amount of share repurchases the firm makes The DDM model ignores such buybacks (Eq. 9.14) ( ) 0 Future Dividends per Share P PV =
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12 The Total Payout Model Total Payout Model includes dividends and share repurchases: The Total Payout model uses the total value of equity while the DDM model uses the value of equity on a per share basis (Eq. 9.14) ( ) 0 0 Future Total Dividends and Repurchases Shares Outstanding PV P =
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13 Example 9.6: Valuation with Share Repurchases Problem: Data for Titan Industries: – 217 million shares outstanding – Expected earnings at the end of the year = $860 million.
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