Financial Management Chapter 8 K
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Chapter 8
Stocks and Their Valuation
LEARNING OBJECTIVES
After reading this chapter, students should be able to:
• Identify some of the more important rights that come with stock ownership and define the following terms: proxy, proxy fight, takeover, and preemptive right.
• Briefly explain why classified stock might be used by a corporation and what founders’ shares are.
• Differentiate between closely held and publicly owned corporations and list the three distinct types of stock market transactions.
• Determine the value of a share of common stock when: (1) dividends are expected to grow at some constant rate, (2) dividends are expected to remain constant, and (3) dividends are expected to grow at some super-normal, or nonconstant, growth rate.
• Calculate the expected rate of return on a constant growth stock.
• Apply the total company (corporate value) model to value a firm in situations when the firm does not pay dividends or is privately held.
• Explain why a stock’s intrinsic value might differ between the total company model and the dividend growth model.
• Explain the following terms: equilibrium, marginal investor, and Efficient Markets Hypothesis (EMH); distinguish among the three levels of market efficiency; briefly explain the implications of the EMH on financial decisions; and discuss the results of empirical studies on market efficiency and the implication of behavioral finance on those results.
• Read and understand the stock market page given in the daily newspaper.
• Explain the reasons for investing in international stocks and identify the “bets” an investor is making when he does invest overseas.
• Define preferred stock, determine the value of a share of preferred stock, or given its value, calculate its expected return.
1. LECTURE SUGGESTIONS
This chapter provides important and useful information on common and preferred stocks.
Chapter 8
Stocks and Their Valuation
LEARNING OBJECTIVES
After reading this chapter, students should be able to:
• Identify some of the more important rights that come with stock ownership and define the following terms: proxy, proxy fight, takeover, and preemptive right.
• Briefly explain why classified stock might be used by a corporation and what founders’ shares are.
• Differentiate between closely held and publicly owned corporations and list the three distinct types of stock market transactions.
• Determine the value of a share of common stock when: (1) dividends are expected to grow at some constant rate, (2) dividends are expected to remain constant, and (3) dividends are expected to grow at some super-normal, or nonconstant, growth rate.
• Calculate the expected rate of return on a constant growth stock.
• Apply the total company (corporate value) model to value a firm in situations when the firm does not pay dividends or is privately held.
• Explain why a stock’s intrinsic value might differ between the total company model and the dividend growth model.
• Explain the following terms: equilibrium, marginal investor, and Efficient Markets Hypothesis (EMH); distinguish among the three levels of market efficiency; briefly explain the implications of the EMH on financial decisions; and discuss the results of empirical studies on market efficiency and the implication of behavioral finance on those results.
• Read and understand the stock market page given in the daily newspaper.
• Explain the reasons for investing in international stocks and identify the “bets” an investor is making when he does invest overseas.
• Define preferred stock, determine the value of a share of preferred stock, or given its value, calculate its expected return.
1. LECTURE SUGGESTIONS
This chapter provides important and useful information on common and preferred stocks.