tailieunhanh - Lecture Managerial finance - Chapter 8: Stocks, stock valuation, and stock market equilibrium

Chapter 8 provides knowledge of stocks, stock valuation, and stock market equilibrium. This chapter presents the following content: Features of common stock, determining common stock values, efficient markets, preferred stock. | CHAPTER 8 Stocks, Stock Valuation, and Stock Market Equilibrium Topics in Chapter Features of common stock Determining common stock values Efficient markets Preferred stock 1 Common Stock: Owners, Directors, and Managers Represents ownership. Ownership implies control. Stockholders elect directors. Directors hire management. Since managers are “agents” of shareholders, their goal should be: Maximize stock price. Classified Stock Classified stock has special provisions. Could classify existing stock as founders’ shares, with voting rights but dividend restrictions. New shares might be called “Class A” shares, with voting restrictions but full dividend rights. Initial Public Offering (IPO) A firm “goes public” through an IPO when the stock is first offered to the public. Prior to an IPO, shares are typically owned by the firm’s managers, key employees, and, in many situations, venture capital providers. Seasoned Equity Offering (SEO) A seasoned equity offering occurs . | CHAPTER 8 Stocks, Stock Valuation, and Stock Market Equilibrium Topics in Chapter Features of common stock Determining common stock values Efficient markets Preferred stock 1 Common Stock: Owners, Directors, and Managers Represents ownership. Ownership implies control. Stockholders elect directors. Directors hire management. Since managers are “agents” of shareholders, their goal should be: Maximize stock price. Classified Stock Classified stock has special provisions. Could classify existing stock as founders’ shares, with voting rights but dividend restrictions. New shares might be called “Class A” shares, with voting restrictions but full dividend rights. Initial Public Offering (IPO) A firm “goes public” through an IPO when the stock is first offered to the public. Prior to an IPO, shares are typically owned by the firm’s managers, key employees, and, in many situations, venture capital providers. Seasoned Equity Offering (SEO) A seasoned equity offering occurs when a company with public stock issues additional shares. After an IPO or SEO, the stock trades in the secondary market, such as the NYSE or Nasdaq. Different Approaches for Valuing Common Stock Dividend growth model Using the multiples of comparable firms Free cash flow method (covered in Chapter 15) Stock Value = PV of Dividends What is a constant growth stock? One whose dividends are expected to grow forever at a constant rate, g. P0 = ^ (1+rs)1 (1+rs)2 (1+rs)3 (1+rs)∞ D1 D2 D3 D∞ + + + + For a constant growth stock: D1 = D0(1+g)1 D2 = D0(1+g)2 Dt = D0(1+g)t If g is constant and less than rs, then: P0 = ^ D0(1+g) rs - g = D1 rs - g Expected Dividends and PVs (rs = 13%, D0 = $2, g = 6%) 0 1 2 3 g=6% 4 13% 11 Intrinsic Stock Value: D0 = , rs = 13%, g = 6%. Constant growth model: = = $. - $ $ P0 = ^ D0(1+g) rs - g = D1 rs - g Expected value one year from now: D1 will have been paid, so .