Equity Valuation: Concepts and Basic Tools Flashcards
1
Q
Market Value > Intrinsic Value
A
- stock is overvalued
2
Q
Market Value = Intrinsic Value
A
- stock is fairly valued
3
Q
Market Value < Intrinsic Value
A
- stock is undervalued
4
Q
Three major categories of Equity Valuation Models
A
- present value
- multiplier models
- asset-based valuation models
5
Q
Dividend payment chronology:
A
- declaration date
- ex-dividend date
- holder-of-record date
- payment date
6
Q
Ex-dividend date
A
- cutoff date on or after which buyers are not eligible for the dividend
- ie need to own before this date
7
Q
Holder-of-record date
A
- list of sh.h who are able to receive the dividend
- usually two days after the ex dividend date
8
Q
r =
A
- cost of equity
- required rate of return on a share
9
Q
CAPM model
A
r = rfr + B(MRP)
10
Q
FCFE def
A
- the residual CF available to be distributed as dividends to common shareholders
11
Q
FCFE model is used because
A
- FCFE is a measure of a firm’s dividend-paying capacity
- can be used for non-dividend paying stocks
- not all of the available cf is distributed
12
Q
FCFE equation
A
FCFE = CFO - FCInv + net borrowing
13
Q
FCFE Model equation
A
Vo = FCFE t / (1+r) ^t
14
Q
Preferred stock valuation formula
A
Vo = Do / r
Do might = Par * dividend
- for non-callable, non-convertible perpetual pref shares
15
Q
The Gordon Growth Model
A
- dividends grow indefinitely at a constant rate
- aka the constant-growth dividend discount model
