Chapter 9 - FIN 3403 - PowerPoint

Chapter 9 - FIN 3403 - PowerPoint - FIN 3403 CHAPTER 9...

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FIN 3403 Module 5 – Chapter 9 Page 1 CHAPTER 9 Stocks and Their Valuation Stocks and Their Valuation Valuation FIN 3403 - Business Finance Basics Market Equilibrium and Efficient Markets Common Stock: Terminology Voting rights Preemptive rights Classified stock Initial public offering (IPO) Par value Dividends Stock splits
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FIN 3403 Module 5 – Chapter 9 Page 2 Control Stock represents ownership Ownership implies control Stockholders elect directors Directors hire management Management’s goal: Maximize the stock price Common Stock Symbols D t = Expected dividend at period t P 0 = Current price P t = Expected price at period t ^ g = Expected growth rate BR = Sustainable growth rate B = Retention rate = (1 - DPR) R = Return on equity Common Stock Symbols r S = Required rate of return r S = Expected rate of return r S = Actual rate of return ^ __ = = Expected dividend yield = Expected capital gains yield ^ D 1 P 0 P 1 -P 0 P 0
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