上海交通大学：《财务管理》教学资源（PPT课件，英文版）Chapter 8 Equity Markets and Stock Valuation

Chapter 8 Equity Markets and Stock Valuation 0

0 Chapter 8 Equity Markets and Stock Valuation

Chapter Outline Common Stock Valuation Some Features of Common and Preferred Stocks The Stock Markets

1 Chapter Outline n Common Stock Valuation n Some Features of Common and Preferred Stocks n The Stock Markets

Key Concepts and Skills Understand how stock prices depend on future dividends and dividend growth Be able to compute stock prices using the dividend growth model Understand how corporate directors are elected Understand how stock markets work Understand how stock prices are quoted 2

2 Key Concepts and Skills n Understand how stock prices depend on future dividends and dividend growth n Be able to compute stock prices using the dividend growth model n Understand how corporate directors are elected n Understand how stock markets work n Understand how stock prices are quoted

Cash Flows to Stockholders If you buy a share of stock,you can receive cash in two ways o The company pays dividends 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 present value of these expected cash flows

3 Cash Flows to Stockholders n If you buy a share of stock, you can receive cash in two ways q The company pays dividends q You sell your shares either to another investor in the market or back to the company n As with bonds, the price of the stock is the present value of these expected cash flows

One-Period Example Suppose you are thinking of purchasing the stock of Moore Oil,Inc.You expect it to pay a $2 dividend in one year,and you believe that you can sell the stock for $14 at that time.If you require a return of 20%on investments of this risk,what is the maximum you would be willing to pay? Compute the PV of the expected cash flows 口Price=（14+2)/(1.2)=$13.33 OrFV=16;IY=20;N=1;CPT PV=-13.33

4 One-Period Example n Suppose you are thinking of purchasing the stock of Moore Oil, Inc. You expect it to pay a $2 dividend in one year, and you believe that you can sell the stock for $14 at that time. If you require a return of 20% on investments of this risk, what is the maximum you would be willing to pay? q Compute the PV of the expected cash flows q Price = (14 + 2) / (1.2) = $13.33 q Or FV = 16; I/Y = 20; N = 1; CPT PV = -13.33

Two-Period Example Now,what if you decide to hold the stock for two years?In addition to the $2 dividend in one year,you expect a dividend of $2.10 and a stock price of $14.70 both at the end of year 2.Now how much would you be willing to pay? ·PV=2/(1.2)+(2.10+14.70)/(1.2)2=13.33 ·Or CFo=0;C01=2;F01=1;C02=16.80;F02=1; NPV;I=20;CPT NPV=13.33 5

5 Two-Period Example n Now, what if you decide to hold the stock for two years? In addition to the $2 dividend in one year, you expect a dividend of $2.10 and a stock price of $14.70 both at the end of year 2. Now how much would you be willing to pay? § PV = 2 / (1.2) + (2.10 + 14.70) / (1.2)2 = 13.33 § Or CF0 = 0; C01 = 2; F01 = 1; C02 = 16.80; F02 = 1; NPV; I = 20; CPT NPV = 13.33

Three-Period Example Finally,what if you decide to hold the stock for three periods?In addition to the dividends at the end of years 1 and 2,you expect to receive a dividend of $2.205 and a stock price of $15.435 both at the end of year 3.Now how much would you be willing to pay? ·PV=2/1.2+2.10/(1.2)2+(2.205+15.435)/(1.2)3 =13.33 OrCF0=0;C01=2;F01=1;C02=2.10;F02=1; C03=17.64;F03=1;NPV;I=20;CPT NPV= 13.33 6

6 Three-Period Example n Finally, what if you decide to hold the stock for three periods? In addition to the dividends at the end of years 1 and 2, you expect to receive a dividend of $2.205 and a stock price of $15.435 both at the end of year 3. Now how much would you be willing to pay? § PV = 2 / 1.2 + 2.10 / (1.2)2 + (2.205 + 15.435) / (1.2)3 = 13.33 § Or CF0 = 0; C01 = 2; F01 = 1; C02 = 2.10; F02 = 1; C03 = 17.64; F03 = 1; NPV; I = 20; CPT NPV = 13.33

Developing The Model You could continue to push back when you would sell the stock You would find that the price of the stock is really just the present value of all expected future dividends -So.how can we estimate all future dividend payments?

7 Developing The Model n You could continue to push back when you would sell the stock n You would find that the price of the stock is really just the present value of all expected future dividends n So, how can we estimate all future dividend payments?

Estimating Dividends:Special Cases Constant dividend The firm will pay a constant dividend forever This is like preferred stock The price is computed using the perpetuity formula ■( Constant dividend growth The firm will increase the dividend by a constant percent every period Supernormal growth Dividend growth is not consistent initially,but settles down to constant growth eventually 8

8 Estimating Dividends: Special Cases n Constant dividend q The firm will pay a constant dividend forever q This is like preferred stock q The price is computed using the perpetuity formula n Constant dividend growth q The firm will increase the dividend by a constant percent every period n Supernormal growth q Dividend growth is not consistent initially, but settles down to constant growth eventually

Zero Growth If dividends are expected at regular intervals forever,then this is like preferred stock and is valued as a perpetuity ■Po=DIR Suppose stock is expected to pay a $0.50 dividend every quarter and the required return is 10%with quarterly compounding.What is the price? ·P0=.50/(.1/4)=.50/.025=$20 9

9 Zero Growth n If dividends are expected at regular intervals forever, then this is like preferred stock and is valued as a perpetuity n P0 = D / R n Suppose stock is expected to pay a $0.50 dividend every quarter and the required return is 10% with quarterly compounding. What is the price? § P0 = .50 / (.1 / 4) = .50 / .025 = $20