Business Administratio5

Business Administratio5 - Business Administration Valuing...

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Business Administration Valuing Common Stocks Rules of thumb from last time: Present value of a perpetuity: C/r Present value of a growing (or shrinking) perpetuity: C/(r-g) Present value of C dollars t years from now: C/[(1+r) t ] Present value of a C-dollar t-year annuity: C[(1/r)-(1/[r(1+r) t ]) If these rules by themselves don't give you enough to solve almost any problem in this course, you haven't been ingenious enough. This time: valueing common stocks Investors will not invest their money in stocks--which are more risky than U.S. Treasury notes, bills, and bonds, unless they are offered a required rate of return "commensurate with the risk." So this chapter presupposes part 2--or rather makes full sense only with part 2 already assimilated. A deep reason why you need to understand what creates stock market value: even if you are trying to act in the interest of your shareholders--to maximize shareholder value--it is very hard to do so if you are clueless about what maximizes shareholder value. Common stocks are traded; NYSE; AMEX; NASDAQ
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Business Administratio5 - Business Administration Valuing...

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