tailieunhanh - Investing In Stocks

In this paper, we first examine whether the decision to split before acquisition announcement is a common behavior among firms, or just a coincidence in some isolated cases. If a general pattern indeed exists, we will attempt to further investigate whether this behavior is motivated by acquirers’ intentions to manipulate stock prices before acquisition announcements to lower the costs of acquisitions. During our sample period (from 1980 to 2003), we find that acquiring firms are more likely than nonacquiring firms to split their common stocks before acquisition announcements. For example, in the six-month period before making an acquisition announcement, the probability of a stock split for an acquiring. | Module 8 Investing in stocks Prepared by Pamela Peterson Drake . CFA 1. Overview When an investor buys a share of common stock it is reasonable to expect that what an investor is willing to pay for the share reflects what he expects to receive from it. What he expects to receive are future cash flows in the form of dividends and the value of the stock when it is sold. The value of a share of stock should be equal to the present value of all the future cash flows you expect to receive from that share. Since common stock never matures today s value is the present value of an infinite stream of cash flows. And also common stock dividends are not fixed as in the case of preferred stock. Not knowing the amount of the dividends -- or even if there will be future dividends -- makes it difficult to determine the value of common stock. A. The dividend valuation model The basic premise of stock valuation is that in a market with rational markets the value of the stock today is the present value of all future cash flows that will accrue to that investor in the stock. In other words you get in a present value sense what you pay for. Using time value of money principles we can determine the price of a stock today based on the discounted value of future cash flows. We refer to this price as the intrinsic value of the stock because it is the Warren Buffett on Intrinsic Value From the 1994 annual report to shareholders of Berkshire Hathaway1 We define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life. Anyone calculating intrinsic value necessarily comes up with a highly subjective figure that will change both as estimates of future cash flows are revised and as interest rates move. Despite its fuzziness however intrinsic value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses. To see how historical input book value and future output intrinsic value .

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