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Finance 6.1

In: Business and Management

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Stock Valuation Application

Constance Clark

BBA307

Stock Valuation Application 1. Write a brief overview concerning stock valuation. Your overview should include:

a. A brief explanation of the legal rights and privileges of common stockholders.
The common stockholders are the owners of a corporation and have certain rights and privileges. This means that ownership implies control. A firm’s common stockholders have the right to elect its firm’s directors, who in turn elect the officers who manage the business. Common stockholders often have the right, called the preemptive right, to purchase any additional shares sold by the firm. In some states, the preemptive right is automatically included in every corporate charter. In others, it is necessary to inset it specifically into the charter. b. Identification of a formula that applies to the valuation of all stocks.
The value of any stock is the present value of its expected dividend stream:

P0 _D1__ + __D2__ + __D3__ +* + __D∞__ = (1 + rs)t (1 + rs) (1 + rs)3 (1 + rs)∞ c. An explanation of what constitutes a “constant growth stock” and how it is valued.

From what my understanding of what a constant growth stock is, one whose dividends are expected to grow at a constant rate forever. Constant growth means that the best estimate of the future growth rate is some constant number, not that we really expect growth to be the same each and every year. Many companies have dividends which are expected to grow steadily into the foreseeable future, and such companies are valued as constant growth stocks.
A constant growth stock: D1 = D0(1 + g), D2 = D1(1 + g) = D0(1 + g)2, etc……

2. Complete the following stock value calculations:

A. Assume that XYZ is constant growth company whose last divined was $2.00 with the dividend expected to...

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