BIS3589_ch09 - Chapter9 Stock Dividend Capitalgain Rights...

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Chapter 9 Stock Valuation and Rate of Return
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Stock Claims of ownership in individual corporations Benefit of holding stock Dividend Capital gain  Rights
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Classified of Stock Preferred Stock Hybrid of Debt and Equity instruments Commonly, dividend will be fixed  Common Stock Usually, Common Stockholders will have the voting rights Claims on residual income  Dividend will be variable based on firm’s performance
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Value Concept Book Value the price of an asset minus its accumulated  depreciation BV does not necessarily fairly represent the actual  market value of the asset
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Value Market Value the buying/selling price calculated as a weighted  average of everybody’s intrinsic value Intrinsic Value: present value of the future cash flows at the  investor’s required rate of return different investors have different perception and  expectation; therefore, IV is unique to each  individual
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1. What are the expected cash flows?  (CFt) 2. When will the cash flows occur? (t) 3. What is the required rate of return for this  particular stream of cash flows?  (i) V = Σ t=1 n (1+i) t CF t
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BIS3589_ch09 - Chapter9 Stock Dividend Capitalgain Rights...

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