BMGT 340 Lecture Notes - Lecture 10: Stock Valuation, Cash Flow, Preferred Stock
15 Nov 2016
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The value of any asset is the value of the future expected cash. A stock that will never pay a dividend doesn"t have value. Don"t specify a price to trade at the best price available. Specify a maximum price you"re willing to pay and wait until the shares are at that price. Cash flows for stockholders: if you buy a share of stock, you can receive cash in two ways. You sell your shares, either to another investor in the market or back to the company: as with bonds, the price of the stock is the pv of the expected cash. Bid quote is offer to buy, ask quote is an offer to sell. Dividend discount model: determine expected cash flows an investor will receive, consider cash flows for an investor with a one-year investment horizon, consider perspective of investors with long investment horizon, no growth. Firm will increase the dividend by a constant percent every period.
