【精】lecture5ValuingStocks

©TheMcGraw-HillCompanies,Inc.,20015-1Irwin/McGraw-HillIrwin/McGraw-HillChapter5FundamentalsofCorporateFinanceThirdEditionValuingStocksBrealeyMyersMarcusslidesbyMatthewWillIrwin/McGraw-Hill©TheMcGraw-HillCompanies,Inc.,2001©TheMcGraw-HillCompanies,Inc.,20015-2Irwin/McGraw-HillIrwin/McGraw-HillTopicsCoveredStocksandtheStockMarketBookValues,LiquidationValuesandMarketValuesValuingCommonStocksSimplifyingtheDividendDiscountModelGrowthStocksandIncomeStocks©TheMcGraw-HillCompanies,Inc.,20015-3Irwin/McGraw-HillStocks&StockMarketPrimaryMarket-Placewherethesaleofnewstockfirstoccurs.InitialPublicOffering(IPO)-Firstofferingofstocktothegeneralpublic.SeasonedIssue-SaleofnewsharesbyafirmthathasalreadybeenthroughanIPO©TheMcGraw-HillCompanies,Inc.,20015-4Irwin/McGraw-HillStocks&StockMarketCommonStock-Ownershipsharesinapubliclyheldcorporation.SecondaryMarket-marketinwhichalreadyissuedsecuritiesaretradedbyinvestors.Dividend-Periodiccashdistributionfromthefirmtotheshareholders.P/ERatio-Pricepersharedividedbyearningspershare.©TheMcGraw-HillCompanies,Inc.,20015-5Irwin/McGraw-HillStocks&StockMarket5777.64481.71989.51414.1896.11067.71308.6570.5222305.2143.201000200030004000500060001997TradingValue($bil)NYSENasdaqLondonParisTokyoGermanTaiwanZurichOsakaTorontoAmexStockMarket©TheMcGraw-HillCompanies,Inc.,20015-6Irwin/McGraw-HillStocks&StockMarketBookValue-Networthofthefirmaccordingtothebalancesheet.LiquidationValue-Netproceedsthatwouldberealizedbysellingthefirm’sassetsandpayingoffitscreditors.MarketValueBalanceSheet-Financialstatementthatusesmarketvalueofassetsandliabilities.©TheMcGraw-HillCompanies,Inc.,20015-7Irwin/McGraw-HillValuingCommonStocksExpectedReturn-Thepercentageyieldthataninvestorforecastsfromaspecificinvestmentoverasetperiodoftime.Sometimescalledtheholdingperiodreturn(HPR).ExpectedReturnrDivPPP1100©TheMcGraw-HillCompanies,Inc.,20015-8Irwin/McGraw-HillValuingCommonStocksTheformulacanbebrokenintotwoparts.DividendYield+CapitalAppreciationExpectedReturnrDivPPPP10100©TheMcGraw-HillCompanies,Inc.,20015-9Irwin/McGraw-HillValuingCommonStocksDividendDiscountModel-Computationoftoday’sstockpricewhichstatesthatsharevalueequalsthepresentvalueofallexpectedfuturedividends.H-Timehorizonforyourinvestment.PDivrDivrDivPrHHH01122111()()...()©TheMcGraw-HillCompanies,Inc.,20015-10Irwin/McGraw-HillValuingCommonStocksExampleCurrentforecastsareforXYZCompanytopaydividendsof$3,$3.24,and$3.50overthenextthreeyears,respectively.Attheendofthreeyearsyouanticipatesellingyourstockatamarketpriceof$94.48.Whatisthepriceofthestockgivena12%expectedreturn?©TheMcGraw-HillCompanies,Inc.,20015-11Irwin/McGraw-HillValuingCommonStocksExampleCurrentforecastsareforXYZCompanytopaydividendsof$3,$3.24,and$3.50overthenextthreeyears,respectively.Attheendofthreeyearsyouanticipatesellingyourstockatamarketpriceof$94.48.Whatisthepriceofthestockgivena12%expectedreturn?PVPV300112324112350944811200123.(.).(.)..(.)$75.©TheMcGraw-HillCompanies,Inc.,20015-12Irwin/McGraw-HillValuingCommonStocksIfweforecastnogrowth,andplantoholdoutstockindefinitely,wewillthenvaluethestockasaPERPETUITY.PerpetuityPDivrorEPSr011Assumesallearningsarepaidtoshareholders.©TheMcGraw-HillCompanies,Inc.,20015-13Irwin/McGraw-HillValuingCommonStocksConstantGrowthDDM-Aversionofthedividendgrowthmodelinwhichdividendsgrowataconstantrate(GordonGrowthModel).Givenanycombinationofvariablesintheequation,youcansolvefortheunknownvariable.PDivrg01©TheMcGraw-HillCompanies,Inc.,20015-14Irwin/McGraw-HillValuingCommonStocksExampleWhatisthevalueofastockthatexpectstopaya$3.00dividendnextyear,andthenincreasethedividendatarateof8%peryear,indefinitely?Assumea12%expectedreturn.PDivrg0100120800$3...$75.©TheMcGraw-HillCompanies,Inc.,20015-15Irwin/McGraw-HillValuingCommonStocksExample-continuedIfthesamestockissellingfor$100inthestockmarket,whatmightthemarketbeassumingaboutthegrowthindividends?$100$3...001209ggAnswerThemarketisassumingthedividendwillgrowat9%peryear,indefinitely.©TheMcGraw-HillCompanies,Inc.,20015-16Irwin/McGraw-HillValuingCommonStocksIfafirmelectstopayalowerdividend,andreinvestthefunds,thestockpricemayincreasebecausefuturedividendsmaybehigher.PayoutRatio-FractionofearningspaidoutasdividendsPlowbackRatio-Fractionofearningsretainedbythefirm.©TheMcGraw-HillCompanies,Inc.,20015-17Irwin/McGraw-HillValuingCommonStocksGrowthcanbederivedfromapplyingthereturnonequitytothepercentageofearningsplowedbackintooperations.g=returnonequityXplowbackratio©TheMcGraw-HillCompanies,Inc.,20015-18Irwin/McGraw-HillValuingCommonStocksExampleOurcompanyforecaststopaya$5.00dividendnextyear,whichrepresents100%ofitsearnings.Thiswillprovideinvestorswitha12%expectedreturn.Instead,wedecidetoplowback40%oftheearningsatthefirm’scurrentreturnonequityof20%.Whatisthevalueofthestockbeforeandaftertheplowbackdecision?©TheMcGraw-HillCompanies,Inc.,20015-19Irwin/McGraw-HillValuingCommonStocksExampleOurcompanyforecaststopaya$5.00dividendnextyear,whichrepresents100%ofitsearnings.Thiswillprovideinvestorswitha12%expectedreturn.I