ch08股票

8-14
What would the expected price today be, if g = 0?

The dividend stream would be a perpetuity.
ks = 13%
0
1
2
3
...
2.00 2.00 2.00
PMT $2.00 P0 $15.38 k 0.13
CHAPTER 8 Stocks and Their Valuation

Features of common stock Determining common stock values Efficient markets Preferred stock
8-1
Facts about common stock
8-2
Social/Ethical Question


Should management be equally concerned about employees, customers, suppliers, and “the public,” or just the stockholders? In an enterprise economy, management should work for stockholders subject to constraints (environmental, fair hiring, etc.) and competition.
8-16
Valuing common stock with nonconstant growth
0 k = 13% 1 s
g = 30% g = 30%
2
g = 30%
3
g = 6%
4
...
D0 = 2.00 2.301
2.600
3.380
4.394
4.658
2.647
3.045 46.114 54.107 = P0
= $2.00 / $25.72 = 7.78%

Capital gains yield (first year)
= 13.00% - 7.78% = 5.22%

After t = 3, the stock has constant growth and dividend yield = 7%, while capital gains yield = 6%.
D0 ( 1 g ) D1 P0 ks - g ks - g
^
$2.00 (0.94) $1.88 $9.89 0.13 - (-0.06) 0.19
8-21
Find expected annual dividend and capital gains yields.

Capital gains yield

Represents ownership Ownership implies control Stockholders elect directors Directors elect management Management’s goal: Maximize the stock price
D3 D1 D2 D P0 ... 1 2 3 (1 k s ) (1 k s ) (1 k s ) (1 k s )
^
8-6
Constant growth stock

A stock whose dividends are expected to grow forever at a constant rate, g.
8-22
Corporate value model


Also called the free cash flow method. Suggests the value of the entire firm equals the present value of the firm’s free cash flows. Remember, free cash flow is the firm’s after-tax operating income less the net capital investment
8-3
Types of stock market transactions

Secondary market Primary market Initial public offering market (“going public”)
8-4
Different approaches for valuing common stock

Capital gains yield (first year)
= 13.00% - 4.81% = 8.19%


During nonconstant growth, dividend yield and capital gains yield are not constant, and capital gains yield ≠ g. After t = 3, the stock has constant growth and dividend yield = 7%, while capital gains yield = 6%.
8-18
Nonconstant growth: What if g = 0% for 3 years before longrun growth of 6%?
0 k = 13% 1 s
g = 0% g = 0%
2
g = 0%
3
g = 6%
4
...
D0 = 2.00 1.77
2.00
2.00
2.00
ks = kRF + (kM – kRF)β = 7% + (12% - 7%)1.2 = 13%
8-10
If D0 = $2 and g is a constant 6%, find the expected dividend stream for the next 3 years, and their PVs.
$
Dt D0 ( 1 g )
t
0.25
Dt PVD t t (1 k )
P0 PVDt
0 Years (t)
8-8
What happens if g > ks?


If g > ks, the constant growth formula leads to a negative stock price, which does not make sense. The constant growth model can only be used if:

Dividend yield
Capital gains yield Total return (ks)
= D1 / P0 = $2.12 / $30.29 = 7.0%

= (P1 – P0) / P0 = ($32.10 - $30.29) / $30.29 = 6.0%

= Dividend Yield + Capital Gains Yield = 7.0% + 6.0% = 13.0%

ks > g g is expected to be constant forever
8-9
If kRF = 7%, kM = 12%, and β = 1.2, what is the required rate of return on the firm’s stock?

Use the SML to calculate the required rate of return (ks):

Dividend growth model Corporate value model Using the multiples of comparable firms
8-5
Dividend growth model

Value of a stock is the present value of the future dividends expected to be generated by the stock.
^
$ P3
4.658
0.13 - 0.06
$66.54
8-17
Find expected dividend and capital gains yields during the first and fourth years.

Dividend yield (first year)
= $2.60 / $54.11 = 4.81%
2.12
1.57
1.39 20.99 25.72 = P0
^
$ P3
2.12
0.13 - 0.06
$30.29
8-19
Find expected dividend and capital gains yields during the first and fourth years.

Dividend yield (first year)
8-20
If the stock was expected to have negative growth (g = -6%), would anyone buy the stock, and what is its value?

The firm still has earnings and pays dividends, even though they may be declining, they still have value.