Chapter 8 Basic Stock Valuation

Question 1

Tracking stock

Answer 1

The dividends of tracking stock are tied to a particular division, rather than the company as a whole. Tracking stock usually has no voting rights and the financial disclosure for the division is not as regulated as for the company.

Question 2

Nonoperating Assets

Answer 2

Short-term investments and other marketable securities, ownership of non-controlling interest in another company.

Question 3

The last year in the forecast

Answer 3

The forecast horizon, horizon date, or terminal date.

Question 4

Do stock values reflect long-term or short-term cash flows?

Answer 4

Often more than two-thirds of cash flow occurs more than five years into the future. Thus, stock values should represent the long-term cash flows.