StockValu (1)

StockValu (1) - Stock Valuation Stock valuation:...

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Unformatted text preview: Stock Valuation Stock valuation: Price/Intrinsic Value= What is Stock? > a security that pays an uncertain cash flow > that implies ownership of the corporation > has limited liability Stocks versus Bonds: > both are sources of external financing > stock ownership implies ownership of the corporation > bond holders are creditors for the corporation > debt holders have no voting rights the bond covenant protects their interests > debt claims on corporate income and assets is senior to both preferred and common stock > debt has a stated maturity; equity has none > tax treatment of payments to these securities is different Approaches to equity valuation o DCF techniques o PV (dividends) o PV(OFCF) o PV(FCFE) o Relative Valuation Techniques o P/BV ratios o P/S ratios o P/E ratios o P/CF ratios For a 1- period investor : P = Div 1 + P 1 (1 + r e ) and (1 + r e ) = Div 1 + P 1 P r e = ( Div 1 + P 1- P ) P where Div 1 P = dividend yield and P 1- P P = capital gains yield Example: You price a share of SUBC stock. The company pays regular quarterly dividends of eleven cents and you anticipate that it will trade for $33 in a year. Investments in an equivalent risk class are currently yielding 8.5 percent. What is a most you would pay for the stock?...
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This note was uploaded on 02/28/2011 for the course FIN 300 taught by Professor Olander during the Spring '08 term at ASU.

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StockValu (1) - Stock Valuation Stock valuation:...

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