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Terms in this set (16)
Proxy
is a document that gives one person the power to act for another, typically the power to vote shares of common stock
Proxy fight
occurs when an outside group solicits stockholders' proxies in an effort to overthrow the current management.
Preemptive right
right to purchase any additional shares sold by the firm
protects the present stockholders' control and prevents dilution of their value.
Classified stock
is used to meet the special needs of the company
founders' shares.
This is stock owned by the firm's founders that carries sole voting rights but restricted dividends for a specified number of years.
free cash flow model
estimates the total value of the firm before estimating the per share stock price so it is called an entity valuation model.
value of operations
is the present value of all the future free cash flows expected from operations when discounted at the weighted average cost of capital
Nonoperating assets
include short-term investments in marketable securities and noncontrol
value of nonoperating assets
is usually close to the figure reported on the balance sheet.
total intrinsic value
is the sum of the value of operations and the nonoperating assets.
horizon date
is the date when there is no need to make additional forecasts because the growth rate in sales, cash flows, and dividends is assumed to be constant thereafter. This is also called the terminal date.
horizon value of operations
value of operations at the end of the explicit forecast period. It is also called the terminal value or continuing value,
value of equity
is the total value of the company minus the value of the debt and preferred stock. The estimated intrinsic price per share is the total value of the equity divided by the number of shares.
value of operations for a nonconstant growth stock:
(1) forecast the free cash flows expected during the nonconstant growth period, (2) estimate the horizon value of operations at the end of the nonconstant growth period, (3) discount the free cash flows and estimated horizon value of operations back to the present, and (4) sum these PVs to find the current estimated value of operations.
present value of a nonconstant growth stock:
(1) forecast the dividends expected during the nonconstant growth period, (2) estimate the projected price of the stock at the end of the nonconstant growth period, (3) discount the dividends and the projected price back to the present, and (4) sum these PVs to find the current estimated value of the stock, .
Preferred stock
is a hybrid security having some characteristics of debt and some of equity
that has a finite maturity is evaluated with a formula that is identical in form to the bond value formula.
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