FINA 2700 Chapter Notes - Chapter 7: Investment, Discounted Cash Flow, Dividend Yield

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Large firms issue shares of stock to the public when they need to raise money. P/e ratio ratio of stock price to earnings per share. Dividend yield a stock"s cash dividend divided by current price. Liquidation value net proceeds realized by selling the firm"s assets and. Book value records all the money that a company has raised from shareholders and other earnings. Going-concern value paying creditors: difference between actual and book/liquidation value, refers to 3 factors: Valuation by comparables: divide stock price by measure of assets/earnings, see how these relations stack up against other firms in the same industry. With no growth: shares should sell for the present value of a constant, perpetual stream of dividends, dividends grow at a constant rate. With constant growth: po = div1 / (r g) Estimating expected rates of return: r = (div1 / po) + g = dividend yield + growth rate. Payout ratio fraction of earnings paid out as dividends.

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