ValueofCommonStock

ValueofCommonStock - Sessions 4 and 5 The value of common...

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Sessions 4 and 5 The value of common stocks 6049 Corporate Finance Lecture Slides, Academic Year 2010/2011 essions 4 and 5: The Value of Common Stocks Sessions 4 and 5: The Value of Common Stocks Hannes Wagner 1 6049 Corporate Finance 1
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Sessions 4 and 5 The value of common stocks Topics Trading stocks Valuing stocks Estimating the cost o capital g p EPS and stock prices iscounted sh ow luation Discounted cash flow valuation pectations Expectations: Similar to sessions 3 and 4 – but less vocabulary! iterature Literature: BMA Chapter 5 2 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Case studies - recent equity transactions? 3 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Debt versus equity Debt holder claims must be paid in full before the claims of equity holders can be paid. Equity holders elect the board of directors of the corporation and thus ultimately control the firm. Equity holders receive cash in the form of dividends, which are not tax deductible to the corporation, while the interest payment so f debt instrument sa rea tax- deductible expense. All of th ea bove is true for all major financial markets. 4 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Primary and secondary markets Primary markets: Sales of new shares to raise new capital Secondary markets: Trading of secondhand shares (no new capital raised) Stock markets can be organized in different ways: Exchanges TC ver e unter) OTC (over-the-counter) Auction markets NYSE, Tokyo Stock Exchange, London Stock Exchange, Frankfurt Exchange Specialist acts as an auctioneer, matching buyers and sellers. Specialist is a computer. Dealer markets NASDAQ ll ades ke lace etween vestor d ealer 5 6049 Corporate Finance All trades take place between investor and dealer. Rare for equities, more frequent for bonds.
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Sessions 4 and 5 The value of common stocks Securities being traded Common stock Voting shares ual asses f mmon ock re e S equent sewhere Dual classes of common stock rare in the US, frequent elsewhere Preferred stock Voting rights Cash flow rights Convertible preferred stock Still) rare outside the US () Warrants Long-term call options Exchange traded funds (ETFs) Closed-end mutual funds ADRs 6 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks American Depository Receipts (ADRs) ADRs are issued by a US depositary bank, represent a fraction of a share, a single share, or multiple shares of foreign stock. ADRs provide a way of getting around (some) US listing regulations. ADRs represent ownership in theshares of a foreign company trading on US financial markets. Quoted in USD, pay dividends SD d n e aded ke e ares f S- ased in USD, and can be traded like the shares of US based companies.
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This note was uploaded on 11/02/2011 for the course FIN 500 taught by Professor Binder during the Summer '11 term at Ill. Chicago.

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ValueofCommonStock - Sessions 4 and 5 The value of common...

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