tailieunhanh - Lecture Principles of Managerial finance (4th edition): Chapter 7 - Lawrence J. Gitman

Chapter 7 focuses on stock valuation. Chapter 7 explains the characteristics of stock that distinguish it from debt and the chapter describes how companies issue stock to investors. You’ll have another chance to practice time-value-of-money techniques as the chapter illustrates how to value stocks by discounting either the dividends that stockholders receive or the free cash flows that the firm generates over time. | Chapter 7 Stock Valuation Learning Goals Differentiate between debt and equity. Discuss the rights, characteristics, and features of both common and preferred stock. Describe the process of issuing common stock, including venture capital, going public and the investment banker’s, and interpreting stock quotations. Learning Goals (cont.) Understand the concept of market efficiency and basic common stock valuation using zero growth, constant growth, and variable growth models. Discuss the free cash flow valuation model and the book value, liquidation value, and price/earnings (P/E) multiple approaches. Explain the relationship among financial decisions, return, risk, and the firm’s value. Differences Between Debt & Equity The Nature of Equity Capital: Voice in Management Unlike bondholders and other credit holders, holders of equity capital are owners of the firm. Common equity holders have voting rights that permit them to elect the firm’s board of directors and to vote on special . | Chapter 7 Stock Valuation Learning Goals Differentiate between debt and equity. Discuss the rights, characteristics, and features of both common and preferred stock. Describe the process of issuing common stock, including venture capital, going public and the investment banker’s, and interpreting stock quotations. Learning Goals (cont.) Understand the concept of market efficiency and basic common stock valuation using zero growth, constant growth, and variable growth models. Discuss the free cash flow valuation model and the book value, liquidation value, and price/earnings (P/E) multiple approaches. Explain the relationship among financial decisions, return, risk, and the firm’s value. Differences Between Debt & Equity The Nature of Equity Capital: Voice in Management Unlike bondholders and other credit holders, holders of equity capital are owners of the firm. Common equity holders have voting rights that permit them to elect the firm’s board of directors and to vote on special issues. Bondholders and preferred stockholders receive no such privileges. The Nature of Equity Capital: Claims on Income & Assets Equity holders are have a residual claim on the firm’s income and assets. Their claims can not be paid until the claims of all creditors, including both interest and principle payments on debt have been satisfied. Because equity holders are the last to receive distributions, they expect greater returns to compensate them for the additional risk they bear. The Nature of Equity Capital: Maturity Unlike debt, equity capital is a permanent form of financing. Equity has no maturity date and never has to be repaid by the firm. The Nature of Equity Capital: Tax Treatment While interest paid to bondholders is tax-deductible to the issuing firm, dividends paid to preferred and common stockholders of the corporation is not. In effect, this further lowers the cost of debt relative to the cost of equity as a source of financing to the firm. Common Stock Common .