Fundamentals of Corporate Finance Fourth Edition

Transcript:Fundamentals of Corporate Finance Fourth Edition:
Fundamentals of Corporate Finance Fourth Edition Chapter 7 Stock Valuation Copyright © 2018, 2015, 2012 Pearson Education, Inc. All Rights Reserved. Chapter Outline 7.1 Stock Basics 7.2 The Mechanics of Stock Trades 7.3 The Dividend-Discount Model 7.4 Estimating Dividends in the Dividend-Discount Model 7.5 Limitations of the Dividend-Discount Model 7.6 Share Repurchases and the Total Payout Model 7.7 Putting It All Together Learning Objectives Understand the tradeoff between dividends and growth in stock valuation Appreciate the limitations of valuing a stock based on expected dividends Value a stock as the present value of the company’s total payout Describe the basics of common stock, preferred stock, and stock quotes Compare how trades are executed on the NYSE and NASDAQ Value a stock as the present value of its expected future dividends 7.1 Stock Basics (1 of 3) Stock Market Reporting: Stock Quotes Common Stock Ticker Symbol Figure 7.1 Stock Price Quote for Nike (NKE) This screenshot from Google Finance shows the basic stock price information and price history charting for the common stock of Nike. The historical price chart covers the period mid-February through late June 2013. The price of $60.39 is for June 25, 2013. Source : www.google.com/finance?q=nke. 7.1 Stock Basics (2 of 3) Common Stock Shareholder Voting Straight Voting Cumulative Voting Classes of Stock Shareholder Rights Annual Meeting Proxy Proxy Contest 7.1 Stock Basics (3 of 3) Preferred Stock Cumulative versus Non-Cumulative Preferred Stock Preferred Stock: Equity or Debt? 7.2 The Mechanics of Stock Trades Market Order Limit Order Round Lot Super Display Book System Floor Broker Dealer 7.3 The Dividend-Discount Model (1 of 8) A One Year Investor Two potential sources of cash flows from owning a stock: Dividends Selling Shares 7.3 The Dividend-Discount Model (2 of 8) A One Year Investor Since the cash flows are not risk-less, they must be discounted at the equity cost of capital 7.3 The Dividend-Discount Model (3 of 8) Dividend Yields, Capital Gains, and Total Returns Dividend Yield Capital Gain Capital Gains Rate Total Return 7.3 The Dividend-Discount Model (4 of 8) Dividend Yields, Capital Gains, and Total Returns The expected total return of the stock should equal the expected return of other investments available in the market with equivalent risk Example 7.1 Stock Prices and Returns (1 of 4) Problem Suppose you expect Longs Drug Stores to pay an annual dividend of $0.56 per share in the coming year and