ValueofCommonStock

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

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6049 Corporate Finance Lecture Slides, Academic Year 2010/2011 Sessions 4 and 5: The Value of Common Stocks Hannes Wagner
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Sessions 4 and 5 The value of common stocks Topics Trading stocks Valuing stocks Estimating the cost of capital EPS and stock prices Discounted cash flow valuation Expectations: Similar to sessions 3 and 4 – but less vocabulary! Literature: BMA Chapter 5 2 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Case studies recent equit transactions? Case studies - recent equity transactions? 3 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Debt ersus equit 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 th i t t t f d bt i t t t the interest payments of debt instruments are a tax- deductible expense. All f th b i t f ll j fi i l All of the above is true for all major financial markets. 4 6049 Corporate Finance
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Sessions 4 and 5 The value of common stocks Primar and secondar markets Primary and secondary markets Primary markets: Sales of new shares to raise new it l capital Secondary markets: Trading of secondhand shares (no new capital raised) Stock markets can be organized in different ways: Exchanges OTC (over-the-counter) Auction markets NYSE, Tokyo Stock Exchange, London Stock E h F kf t E h Exchange, Frankfurt Exchange Specialist acts as an auctioneer, matching buyers and sellers. Specialist is a computer. Dealer markets NASDAQ All trades take place between investor and dealer 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 Dual classes of common stock rare in the US frequent elsewhere Dual classes of common stock rare in the US, frequent elsewhere Preferred stock Voting rights h fl i h Cash flow rights Convertible preferred stock (Still) rare outside the US Warrants Long-term call options E h t d d f d (ETF ) 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 Depositor Receipts (ADRs) 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.
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