EC223 Lecture Notes - Lecture 7: Dividend Discount Model, Stock Valuation, Common Stock
Document Summary
Common stock principal way corporations raise equity capital. Holders of common stock own interest in corporation consistent with percentage of outstanding shares owned. Important to have right to vote and to be residual claimant of all funds flowing into the firm known as cash flows. Means that the shareholder receives whatever remains after all other claims against the firms assets have been satisfied. Shareholders payed dividends from the net earnings of the corporation. Dividends are payments made periodically, usually every quarter to shareholders. Basic principle of finance is that the value of any investment is found by computing the value. Shareholder has right to sell stock today of all cash flows the investment will generate over its life. Value (cid:272)o(cid:373)(cid:373)o(cid:374) sto(cid:272)k as the (cid:448)alue i(cid:374) today"s dolla(cid:396) of all futu(cid:396)e (cid:272)ash flo(cid:449)s. One period valuation model buy the stock, hold it for one period to get a dividend and then sell the stock.
