Textbook Notes (369,051)
Canada (162,364)
Economics (818)
ECON 2560 (71)
Chapter 7


4 Pages

Course Code
ECON 2560
Nancy Bower

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THEORY OF FINANCE CHAPTER 7STOCKS AND STOCK MARKETSLarge firms sell or issue shares of stock to the public when they need to raise money and as the name suggest shareholders share the ownership of the firm in proportion to the number of shares they holdSales of new shares by the firm are said to occur in the primary marketo2 types of primary market issues IPOinitial public offering Selling shares for the first time Seasoned equity offerings Selling more sharesoP0DividendvieldExchanges are really markets for secondhand stocks or secondary marketsRatio of price per share to earnings per shareprice earnings multiple Book value records all the money the company has raised from its shareholders plus all the earnings that have been plowed back into the firmStock price equals liquidation value per shareamount of cash per share a company could raise if its sold all its assetsDifference between a companys actual value and its book or liquidation value is oftern referred to as a going concern valueoExtra earning power a company may have the ability to earn more than an adequate rate of return on assetsoIntangible assets accounting rules dont permit firms to put all assets on the balance sheet or statement of financial positionoValue of future investments if investors believe a company will have to opportunity to make exceedingly profitable investments in the futureMarket value balance sheet oAssets ssets in place investment opportunities
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