FIN 3080 Prof Xin Li Week 8 Notes
FIN 3080 Prof Xin Li Week 8 Notes FIN 3080C
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This 1 page Class Notes was uploaded by Brady Zuver on Saturday October 8, 2016. The Class Notes belongs to FIN 3080C at University of Cincinnati taught by Xin Li in Fall 2016. Since its upload, it has received 2 views. For similar materials see Business Finance in Finance at University of Cincinnati.
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Date Created: 10/08/16
FIN 3080 Prof Xin Li Week 8 Notes Chapter 8 1. Common Stock Valuation a. The value of a stock is the PV of all future CFs i. Zero Growth 1. A Zero Growth will be seen as an ordinary perpetuity with equal cash flow (D) every period a. P 0 D/R, where R is the Required Return ii. Constant Growth 1. Dividend always grows at a constant rate a. D =D * (1+g) t t 0 b. P 0(D *01+g))/(R-g) if getting dividend this year c. D t+1(R-g) if getting dividend at a later date iii. Nonconstant growth 1. To Find PV, need to find what it will be worth once dividends are paid 2. Calculate the PV of the FV to get today’s price b. Components of the Required Return i. Dividend Yield: A stock’s expected cash dividend by its current price ii. Capital Gains Yield: Dividend Growth Rate, the rate at which an investment grows 2. Features of Common and Preferred Stocks a. Definitions i. Common Stock: Equity without priority for dividends or in bankruptcy ii. Preferred Stock: Stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights iii. Dividends: Payments by a corporation to shareholders, made in either cash or stock b. Shareholder Rights i. Elect Directors, who hire managers to carry out directives 1. Control Org through right to elect directors ii. Cumulative Voting: A procedure in which a shareholder may cast all votes for one member of the board of directors iii. Straight Voting: A procedure in which a shareholder may cast all votes for each member of the board of directors
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