财务管理-第八章-PPT课件.ppt

Chapter 8Stock ValuationMcGraw-Hill/IrwinCopyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.1Key Concepts and SkillsUnderstand how stock prices depend on future dividends and dividend growthBe able to compute stock prices using the dividend growth modelUnderstand how corporate directors are electedUnderstand how stock markets workUnderstand how stock prices are quoted8-22Chapter OutlineCommon Stock ValuationSome Features of Common and Preferred StocksThe Stock Markets8-33Cash Flows for StockholdersIf you buy a share of stock,you can receive cash in two waysThe company pays dividendsYou sell your shares,either to another investor in the market or back to the companyAs with bonds,the price of the stock is the present value of these expected cash flows 8-44One-Period ExampleSuppose you are thinking of purchasing the stock of Moore Oil,Inc.You expect it to pay a$2 dividend in one year,and you believe that you can sell the stock for$14 at that time.If you require a return of 20%on investments of this risk,what is the maximum you would be willing to pay?Compute the PV of the expected cash flowsPrice=(14+2)/(1.2)=$13.33Or FV=16;I/Y=20;N=1;CPT PV=-13.338-55Two-Period ExampleNow,what if you decide to hold the stock for two years?In addition to the dividend in one year,you expect a dividend of$2.10 in two years and a stock price of$14.70 at the end of year 2.Now how much would you be willing to pay?PV=2/(1.2)+(2.10+14.70)/(1.2)2=13.338-66Three-Period ExampleFinally,what if you decide to hold the stock for three years?In addition to the dividends at the end of years 1 and 2,you expect to receive a dividend of$2.205 at the end of year 3 and the stock price is expected to be$15.435.Now how much would you be willing to pay?PV=2/1.2+2.10/(1.2)2+(2.205+15.435)/(1.2)3=13.338-77Developing The ModelYou could continue to push back the year in which you will sell the stockYou would find that the price of the stock is really just the present value of all expected future dividendsSo,how can we estimate all future dividend payments?8-88Estimating Dividends:Special CasesConstant dividendThe firm will pay a constant dividend foreverThis is like preferred stockThe price is computed using the perpetuity formulaConstant dividend growthThe firm will increase the dividend by a constant percent every periodThe price is computed using the growing perpetuity modelSupernormal growthDividend growth is not consistent initially,but settles down to constant growth eventuallyThe price is computed using a multistage model8-99Zero GrowthIf dividends are expected at regular intervals forever,then this is a perpetuity and the present value of expected future dividends can be found using the perpetuity formulaP0=D/RSuppose stock is expected to pay a$0.50 dividend every quarter and the required return is 10%with quarterly compounding.What is the price?P0=.50/(.1/4)=$208-1010Dividend Growth ModelDividends are expected to grow at a constant percent per period.P0=D1/(1+R)+D2/(1+R)2+D3/(1+R)3+P0=D0(1+g)/(1+R)+D0(1+g)2/(1+R)2+D0(1+g)3/(1+R)3+With a little algebra and some series work,this reduces to:8-1111DGM Example 1Suppose Big D,Inc.,just paid a dividend of$0.50 per share.It is expected to increase its dividend by 2%per year.If the market requires a return of 15%on assets of this risk,how much should the stock be selling for?P0=.50(1+.02)/(.15-.02)=$3.928-1212DGM Example 2Suppose TB Pirates,Inc.,is expected to pay a$2 dividend in one year.If the dividend is expected to grow at 5%per year and the required return is 20%,what is the price?P0=2/(.2-.05)=$13.33Why isnt the$2 in the numerator multiplied by(1.05)in this example?8-1313Stock Price Sensitivity to Dividend Growth,gD1=$2;R=20%8-1414Stock Price Sensitivity to Required Return,RD1=$2;g=5%8-1515Example 8.3 Gordon Growth Company-IGordon Growth Company is expected to pay a dividend of$4 next period,and dividends are expected to grow at 6%per year.The required return is 16%.What is the current price?P0=4/(.16-.06)=$40Remember that we already have the dividend expected next year,so we dont multiply the dividend by 1+g8-1616Example 8.3 Gordon Growth Company-IIWhat is the price expected to be in year 4?P4=D4(1+g)/(R g)=D5/(R g)P4=4(1+.06)4/(.16-.06)=50.50What is the implied return given the change in price during the four year period?50.50=40(1+return)4;return=6%PV=-40;FV=50.50;N=4;CPT I/Y=6%The price is assumed to grow at the same rate as the dividends8-1717Nonconstant Growth Example-ISuppose a firm is expected to increase dividends by 20%in one year and by 15%in two years.After that,dividends will increase at a rate of 5%per year indefinitely.If the last dividend was$1 and the required return is 20%,what is the price of the stock?Remember that we have to find the PV of all expected future dividends.8-1818Nonconstant Growth Example-IICompute the dividends until growth levels offD1=1(1.2)=$1.20D2=1.20(1.15)=$1.38D3=1.38(1.05)=$1.449Find the expected future priceP2=D3/(R g)=1.449/(.2-.05)=9.66Find the present value of the expected future cash flowsP0=1.20/(1.2)+(1.38+9.66)/(1.2)2=8.678-1919Quick Quiz Part IWhat is the value of a stock that is expected to pay a constant dividend of$2 per year if the required return is 15%?What if the company starts increasing dividends by 3%per year,beginning with the next dividend?The required return stays at 15%.8-2020Using the DGM to Find RStart with the DGM:8-2121Example:Finding the Required Return Suppose a firms stock is selling for$10.50.It just paid a$1 dividend,and dividends are expected to grow at 5%per year.What is the required return?R=1(1.05)/10.50+.05=15%What is the dividend yield?1(1.05)/10.50=10%What is the capital gains yield?g=5%8-2222Stock Valuation Using MultiplesAnother common valuation approach is to multiply a benchmark PE ratio by earnings per share(EPS)to come up with a stock pricePt=Benchmark PE ratio*EPStThe benchmark PE ratio is often an industry average or based on a companys own historical valuesThe price-sales ratio can also be used8-2323Example:Stock Valuation Using Multiples Suppose a company had earnings per share of$3 over the past year.The industry average PE ratio is 12.Use this information to value this companys stock price.Pt =12 x$3=$36 per share8-2424Table 8.1-Stock Valuation Summary8-2525Features of Common StockVoting RightsProxy votingClasses of stockOther RightsShare proportionally in declared dividendsShare proportionally in remaining assets during liquidationPreemptive right first shot at new stock issue to maintain proportional ownership if desired8-2626Dividend CharacteristicsDividends are not a liability of the firm until a dividend has been declared by the BoardConsequently,a firm cannot go bankrupt for not declaring dividendsDividends and TaxesDividend payments are not considered a business expense;therefore,they are not tax deductibleThe taxation of dividends received by individuals depends on the holding periodDividends received by corporations have a minimum 70%exclusion from taxable income8-2727Features of Preferred StockDividendsStated dividend that must be paid before dividends can be paid to common stockholdersDividends are not a liability of the firm,and preferred dividends can be deferred indefinitelyMost preferred dividends are cumulative any missed preferred dividends have to be paid before common dividends can be paidPreferred stock generally does not carry voting rights8-2828Stock MarketDealers vs.BrokersNew York Stock Exchange(NYSE)Largest stock market in the worldLicense holders(1,366)Commission brokersSpecialistsFloor brokersFloor tradersOperationsFloor activity8-2929NASDAQNot a physical exchange computer-based quotation systemMultiple market makersElectronic Communications NetworksThree levels of informationLevel 1 median quotes,registered representativesLevel 2 view quotes,brokers&dealersLevel 3 view and update quotes,dealers onlyLarge portion of technology stocks8-3030Work the Web ExampleElectronic Communications Networks provide trading in NASDAQ securitiesClick on the web surfer and visit Instinet8-3131What information is provided in the stock quote?Click on the web surfer to go to Bloomberg for current stock quotes.Reading Stock Quotes8-3232Quick Quiz Part IIYou observe a stock price of$18.75.You expect a dividend growth rate of 5%,and the most recent dividend was$1.50.What is the required return?What are some of the major characteristics of common stock?What are some of the major characteristics of preferred stock?8-3333Ethics IssuesThe status of pension funding(i.e.,over-vs.under-funded)depends heavily on the choice of a discount rate.When actuaries are choosing the appropriate rate,should they give greater priority to future pension recipients,management,or shareholders?How has the increasing availability and use of the internet impacted the ability of stock traders to act unethically?8-3434Comprehensive ProblemXYZ stock currently sells for$50 per share.The next expected annual dividend is$2,and the growth rate is 6%.What is the expected rate of return on this stock?If the required rate of return on this stock were 12%,what would the stock price be,and what would the dividend yield be?8-3535End of Chapter8-3636