-Present value of the future cash flows at the investor's required rate of return Preferred Stock: -Hybrid of Debt and Equity instruments -Commonly, dividend will be fixed
-Dividend will be variable based on firm's performance -The price of an asset minus its accumulated depreciation -BV does not necessarily fairly represent the actual market value of the asset -the buying/selling price calculated as a weighted average of everybody's intrinsic value Intrinsic Value: -Present value of the future cash flows at the investor's required rate of return -Different investors have different perception and expectation; therefore, IV is unique to each individual
-Assumption is"Holding stock perpetually, Dividend increase at constant growth. "Two-Stage growth Dividend Discount Model" -Assumption is -G'iOwth rate is one rate for early period (usually very high growth rate)
-Assumption is
-Growth rate is one rate for early period (usually very high growth rate) . -Then, growth rate is gradually decline (linear) to another constant growth rate ~ transition period -After that, growth rate is constant at another rate
L
t=l
n
-What are the expected cash flows? (CFt)
eFt (1+i)t
-When will the cash flows occur? (t) -What is the reqUired rate of return for this particular stream of cash flows? (i)
D
kp
-Present value of the future cash flows at the investor's required rate of return -Dividend of preferred stock is fixed -Equity instrument has no maturity ~ we use perpetuity concept
-See from secondary data & Calculate using Regression method -Function approach & Using SLOPEfunction
PAR
-Present value of the future cash flows at the investor's required rate of return
(1 tkd)n -PV annuity for periodic coupon payment + PV
of PAR at maturity
-y (dependent) 7 stock return
-x (independent)
Beta =
7 market return =-PV(Rate,Nper,Pmt,FV,Type) COY(Rm.Ril Var(Rm) 7 required rate of return (Kc.) 7 number of period to maturity (n)
-Cov =...