EQUITY * Provides the rights to all assets of a corporation after all other claimants have received their stakes. * Common Stock - Ownership shares in a publicly held corporation. * Secondary Market - market in which already issued securities are traded by investors. * Dividend - Periodic cash distribution from the firm to the shareholders. * P/E Ratio - Price per share divided by earnings per share, most commonly used for valuation. * Book Value - Net worth of the firm according to the balance sheet. * Liquidation Value - Net proceeds that would be realized by selling the firm’s assets and paying off its creditors. * Market Value Balance Sheet - Financial statement that uses market value of assets and liabilities. * Preferred shares – pay a fixed dividend, can be omitted Dividends paid before common shares Equity on the balance sheet No voting rights, as with common stock * Expected Return - % yield forecasted from an investment over a period of time, also known as ‘the cost of equity capital’

* Dividend Discount Model – finds share value by adding discounted future dividend payments and eventual selling price. *

* If no growth is forecasted, and the stock is to be held forever, value the stock as a perpetuity: * Constant Growth DDM – similar to dividend growth model, but dividends grow at a constant rate.

* If a firm pays lower dividend and reinvests funds, may lead to higher future dividends, leading to a higher stock price. * Payout Ratio – Fraction of earnings paid out as dividends. * Plowback Ratio – Fraction of earnings retained by the firm. * How to derive growth :

* Present Value of Growth Opportunities (PVGO) – difference between stock price without plowback and