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Day 15-Ch 7 &amp; Personal Finance II-10.24.11

# Day 15-Ch 7 &amp; Personal Finance II-10.24.11 - Day15...

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Business Management 201 Day 15 Chapter 7: Stock Valuation Personal Finance II October 24, 2011

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Day 15 Agenda 1) Ch 11 Reading Quiz Due Wednesday, Oct 26 8:00 AM 2) POW Quiz #7: Personal Finance Goals & Plan—Due  Friday, October 28 at 11:59 PM 3) Course Survey due Wednesday, Oct 26  4) Midterm Exam Discussion on Wednesday 5) TA Review Sessions this Week Will Discuss Midterm: TA Open Lab Session—Tuesday 2:00 PM-3:00 PM in 251 TNRB TA Open Lab Session—Thursday 11:00 AM-12:00 PM in 3108 JKB TA Open Lab Session—Friday 11:00 AM-1:00 PM in 184 TNRB TA Review Session—Tuesday 7:00 PM-8:00 PM in 3108 JKB TA Review Session—Thursday 5:00 PM-6:00 PM in 3714 HBLL 1) Chapter 7: Stock Valuation 2) Personal Finance I
Chapter 7: Chapter 7: Stock Valuation Stock Valuation

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Mind Map Why?:  Common stock (aka common  equity) represents ownership in a  firm.   As such, common stock holders have a  residual claim  on the earnings and  assets of the firm.   In this section, we discuss the basic  models used to value equity.  This is  sometimes difficult given the  uncertainty  associated with equity  cash flows.
Mind Map Learning Objectives: Calculate the value of common  and preferred stock with the basic  valuation models, including: Single-Period Model Constant Growth Model Two-Stage Model

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Mind Map Key Words/Concepts: Preferred Stock Common Stock Dividend Discount Model Constant Growth Model  [aka Gordon Growth] Two-Stage Model
Stock Valuation The  intrinsic value  of an asset = the  present value  of the stream of expected  cash flows  discounted  at an appropriate  required rate of return . Does this sound familiar? (Recall our  discussion of bond valuation.)

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Preferred Preferred Stock Stock
Preferred Stock Hybrid Security : 1) It’s like common stock:  no fixed  maturity . Technically, it’s part of equity capital. 2) It’s like debt:  preferred dividends are  fixed . Missing a preferred dividend does not  constitute default, but preferred  dividends are usually cumulative .

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Usually sold for  \$25 \$50 , or  \$100  per share par value. Dividends are fixed  and often  quoted as a percentage of par.   Example:   In 1988, Xerox issued \$75  million of 8.25% preferred stock at \$50  per share. Fixed Annual Dividend Per Share: \$4.125  (\$50 x 0.0825=\$4.125) Preferred Stock
Preferred Stock is usually  non-voting  and  non- participating . Liquidation Priority :    lower than debt, higher  than common stock.

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