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Class 8&9 - StockMarkets ValuationintoStocks...

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Stock Markets Applying Discounted Cash Flow  Valuation into Stocks
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Debt vs. Equity Debt Not an ownership interest Creditors do not have voting rights Interest is considered a cost of doing business and is tax deductible Creditors have legal recourse if interest or principal payments are  missed Excess debt can lead to financial distress and bankruptcy Equity Ownership interest Common stockholders vote for the board of directors and other  issues Dividends are not considered a cost of doing business and are not tax  deductible Dividends are not a liability of the firm, and stockholders have no  legal recourse if dividends are not paid An all equity firm can not go bankrupt merely due to debt since it  has no debt
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Stock Markets New York Stock Exchange (NYSE) Largest stock market in the world License holders (1,366) Specialists (Market makers) Bid and Ask prices Bid-ask spread Commission brokers Floor brokers Floor traders
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Stock Markets NASDAQ Not a physical exchange – computer-based  quotation system Multiple market makers  Electronic Communications Networks Large portion of technology stocks
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Common vs. Preferred Stock Common Stock Voting Rights Dividend rights Share proportionally in declared dividends Claims in liquidation Share proportionally in remaining assets during  liquidation Preemptive right  First shot at new stock issue to maintain proportional  ownership if desired
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Common vs. Preferred Stock Preferred Stock Has dividend priority over common No voting rights in most cases Get a pre-stated value in case of liquidation Are usually credit rated like bonds 
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Stock Valuation Remember The price/current value of any financial  asset is the present value of its future cash  flows
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