stock characteristic & valuation. types of stock preferred stock preferred stock common stock...
TRANSCRIPT
![Page 1: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/1.jpg)
Stock Stock Characteristic & Characteristic &
ValuationValuation
![Page 2: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/2.jpg)
Types of Stock
Preferred StockPreferred Stock Common StockCommon Stock
Both are related to ownershipBoth are related to ownership
![Page 3: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/3.jpg)
Security Valuation
In general, the intrinsic value of an asset = the present value of the stream of expected cash flows discounted at an appropriate required rate of return.
![Page 4: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/4.jpg)
Preferred Stock
A hybrid security: It’s like common stock - no fixed
maturity. Technically, it’s part of equity capital.
It’s like debt - preferred dividends are
fixed. Missing a preferred dividend does not
constitute default, but preferred dividends are cumulative.
![Page 5: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/5.jpg)
Firms may have multiple classes of preferreds, each with different features.
Priority: lower than debt, higher than common stock.
Cumulative feature: all past unpaid preferred stock dividends must be paid before any common stock dividends are declared.
Preferred Stock Features
![Page 6: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/6.jpg)
Convertibility: many preferreds are convertible into common shares.
Adjustable rate preferreds have dividends tied to interest rates.
Participation: some (very few) preferreds have dividends tied to the firm’s earnings.
Preferred Stock Features
![Page 7: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/7.jpg)
Preferred Stock Valuation
A preferred stock can usually be valued like a perpetuity:
V =Dk
psps
![Page 8: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/8.jpg)
Example:
Xerox preferred pays an 8.25% dividend on a $50 par value.
Suppose our required rate of return on Xerox preferred is 9.5%.
VVpsps ==4.1254.125
.095.095== $43.42$43.42
![Page 9: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/9.jpg)
Expected Rate of Return on Preferred
Just adjust the valuation model:
D
Po
kps =
![Page 10: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/10.jpg)
Example
If we know the preferred stock price is $40, and the preferred dividend is $4.125, the expected return is:
D
Po
kps = = = .10314.125
40
![Page 11: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/11.jpg)
Common Stock
Is a variable-income security. Dividends may be increased or decreased,
depending on earnings.Represents equity or ownership. Includes voting rights.Limited liability: liability is limited to
amount of owners’ investment.Priority: lower than debt and preferred.
![Page 12: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/12.jpg)
Common Stock Characteristics
Claim on Income - a stockholder has a claim on the firm’s residual income.
Claim on Assets - a stockholder has a residual claim on the firm’s assets in case of liquidation.
Preemptive Rights - stockholders may share proportionally in any new stock issues.
Voting Rights - right to vote for the firm’s board of directors.
![Page 13: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/13.jpg)
You expect XYZ stock to pay a $5.50 dividend at the end of the year. The stock price is expected to be $120 at that time.
If you require a 15% rate of return, what would you pay for the stock now?
Common Stock Valuation(Single Holding Period)
0 1
? 5.50 + 120
![Page 14: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/14.jpg)
Common Stock Valuation(Single Holding Period)
Solution:
Vcs = (5.50/1.15) + (120/1.15)
= 4.783 + 104.348
= $109.13
![Page 15: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/15.jpg)
Common Stock Valuation(Multiple Holding Periods)
Constant Growth ModelAssumes common stock
dividends will grow at a constant rate into the future.
Vcs =D1
kcs - g
![Page 16: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/16.jpg)
Constant Growth Model Assumes common stock dividends will grow at a
constant rate into the future.
D1 = the dividend at the end of period 1.
kcs = the required return on the common stock. g = the constant, annual dividend growth rate.
Vcs =D1
kcs - g
![Page 17: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/17.jpg)
Example
XYZ stock recently paid a $5.00 dividend. The dividend is expected to grow at 10% per year indefinitely. What would we be willing to pay if our required return on XYZ stock is 15%?
D0 = $5, so D1 = 5 (1.10) = $5.50
![Page 18: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/18.jpg)
Example
XYZ stock recently paid a $5.00 dividend. The dividend is expected to grow at 10% per year indefinitely. What would we be willing to pay if our required return on XYZ stock is 15%?
Vcs = = = $110 D1 5.50
kcs - g .15 - .10
![Page 19: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/19.jpg)
Expected Return on Common Stock
Just adjust the valuation model
Vcs =D
kcs - g
![Page 20: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/20.jpg)
Expected Return on Common Stock
Just adjust the valuation model
Vcs =D
kcs - g
k = ( ) + gD1
Po
![Page 21: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/21.jpg)
Example
We know a stock will pay a $3.00 dividend at time 1, has a price of $27 and an expected growth rate of 5%.
![Page 22: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/22.jpg)
Example
We know a stock will pay a $3.00 dividend at time 1, has a price of $27 and an expected growth rate of 5%.
kcs = ( ) + gD1
Po
![Page 23: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/23.jpg)
Example
We know a stock will pay a $3.00 dividend at time 1, has a price of $27 and an expected growth rate of 5%.
kcs = ( ) + gD1
Po
kcs = ( ) + .05 = 16.11%3.00
27
![Page 24: Stock Characteristic & Valuation. Types of Stock Preferred Stock Preferred Stock Common Stock Common Stock Both are related to ownership](https://reader033.vdocuments.us/reader033/viewer/2022061511/5697c0201a28abf838cd27ce/html5/thumbnails/24.jpg)
Intermezo
Mengapa di komputer ada tombol ENTER
Karena kalau tombolnya ENTAR programnya tidak
segera jalan