BUSFIN 3220 Lecture Notes - Lecture 9: Income Statement, Free Cash Flow, Longrun
10 Nov 2018
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Can influence management decisions, try and overthrow them. Preemptive right: current shareholders can buy new stocks issued. Prevents management control, retains ownership share and power. Classified stock: different shares have different voting rights (ranks stock and classifies by ability in [class]) Stockholders and outsiders are always striving to estimate intrinsic value to compare to current price (worth it or not to buy/sell?) Stock value: pv of future dividends expected to be generated. Above statement only true when roe > equity cost (aka return is more than the cost) Even if no cash dividends offered, reinvesting more sought after. Expect both to be constant forever (not changing) Determine pv of time to infinity (use constant growth model) Calculate dividends during the initial high growth rate (individually) Take step 1 and 2 back to time 0. Note* capital gains growth rate = dividend growth rate. Total return (dividend yield + capital gains yield)
