Lesson 5 Part 2 Flashcards
The true owners of a corporate business that are sometimes referred to as residual owners because they receive what is left —
the RESIDUAL—after all other claims on the firm’s income and assets have been satisfied
Common Stock or Common Stockholder
(T/F)
Common Stockholders can lose any more than they have invested in the firm
F, CANNOT
(T/F)
Common stockholders expect to earn relatively high returns.
T
gives its holders certain privileges that make them senior to common
stockholders cause of promised a FIXED periodic dividend
Preferred Stock
(T/F)
preferred dividends are not tax deductible for the firm that pays them.
T
(T/F)
Par-value preferred stock has a stated face value, and its annual dividend is specified as
a percentage of this value
T
Basic common stock valuation
Zero-Growth Model
Constant-Growth (Gordon Growth) Model
Variable-Growth Model
Free Cash Flow Valuation Model
An approach to dividend valuation that assumes a CONSTANT, nongrowing dividend stream.
Zero-Growth Model.
A widely cited dividend valuation approach that assumes that dividends will GROW at a CONSTANT rate, but a rate that is LESS than the required RETURN.
Constant-Growth (Gordon Growth) Model
A dividend valuation approach that allows for a change in the dividend growth rate
“non - constant”
Variable-Growth Model
(T/ F)
To determine the value of a share of stock in the case of variable growth, we use a FOUR-step procedure:
T
A model that determines the value of an entire company as the present value of its expected free cash flows discounted at the firm’s weighted average cost of capital, which is its expected average future cost of funds over the long run.
Free Cash Flow Valuation Model
Other Approaches to Common Valuation
Book Value per Share
Liquidation Value per Share
Price / Earnings Multiple Approach
The amount per share of common stock that would be RECEIVED if all the firm’s assets were sold for their EXACT BOOK (accounting) value and the PROCEEDS remaining after paying all liabilities (including preferred stock) were divided among the common stockholders
Book Value per Share
The actual amount per share of common stock that would be RECEIVED if all the firm’s assets were sold for their MARKET VALUE
value at disposal
- Liquidation Value per Share
