Finance Stock Valuation

  1. One of the fundemental rights of common stockholders is to elect a firm's ___, who in turn elect officers who manage the business.
  2. If a stockholder cannot vote in person, particpation in annual meetings is still possible through a ___.
  3. The preemptive right protects stockholders from a loss of ___ as well as ___ of market value from the sales of shares below market value.
    • control
    • dillution
  4. When common stock is divided into classes, this classification differentiats who receives ___ and the ___ ___ ___.
    • dividends
    • right to vote
  5. Like other financial assets, the value of common stock is the ___ value of future cash streams.
  6. The cash flow stream (expected rate of return)expected from a common stock consists of a ___ yield and a ___ ___ yield.

    Yield Formulas

    D1 / P0

    • Capital Gains Yield
    • (P1(hat) - P0) / P0
  7. If the Future Growth Rate of dividends is expected to be ___, then the rate of return is simply the ___ yield.
    • Zero
    • Dividend
  8. Investors always expect a ___ return on stock investments, but in some years ___ returns are possible.
    • Positive
    • Negative
  9. Preferred stock is similar to ___ and ___ stock in other ways.
    • Bonds
    • Common stock
  10. If earnings are poor, an outside group may try to take control of a business in order overthrow management, this is called ___ ___.
    proxy fight
  11. A ___ ___ makes a possible aquisition unattractive and wards off hostile takeover attempts.
    poison pill
  12. A zero growth stock can be thought of as a ____.

    P0(hat) = Dividend / rs

    rs = discount rate
  13. Common stock that is given a special designation is called ___ stock.
  14. The ___ investor is a representative investor whose actions reflect the beliefs of those people who are currently trading a stock and determnines a stock price.
  15. ___ or ___ growth firms are in the part of their life cycle where they grow much faster than the economy.
    • supernormal
    • non-constant
  16. The ___ or ___ date is the date when the growth rate becomes constant.
    • horizon
    • terminal
  17. The ___ valuation model that is used when a firm has no history of dividends or the value of a division in a larger firm.
  18. ___ ___ ___ is the cash generated before making any payments to common and preferred stock holders, and bondholders, so it is available to all investors.
    free cash flow
  19. ___ shares are stock owned by the firms founders that have sole voting rights but restricted dividends for a specified number of years.
  20. The constant growth model is used when companies are ___ and have a ___ history of growth and future expectations.
    • mature
    • stable
  21. The corporate valuation model discounts a firms FCF at the ___ to determine the firms value.
  22. In equilibrium, 2 things must hold:
    1. The expected rate of return as seen by the marginal investor must equal its ___ price.

    2. Actual market price must equal its ___ value as estimated by the marginal investor.
    • Requires
    • Intrinsic
  23. A necessary condition of the constant growth model is that rs is ___ than g.
  24. Value of stock formula for constant growth
    P0(hat) = D1 / rs - g
  25. Value of a dividend for a given year formula.
    Dt = D0(1+g)t
  26. Capital gains yield formula
    1. Find p(hat) for next year

    2. Subtract from this years p. (this is capital gain)

    3. CGY = capital gain / beginning stock price
  27. Horizon Value formula
    Pn(hat) = Dividend (Year +1) / (rs - g)

    = DN(1+ g) / (rs -g)
  28. Valuation using FCF approach formula
    V = FCF(1+g) / (WACC - g)
  29. Value of preferred stock
    Vps = Dps / rps
Card Set
Finance Stock Valuation
Finance Stock Evaluation