Financial Valuations and Transaction Controls Flashcards
Dividend Discount Model
the value of a share of stock is found by taking the dividend per share and dividing it by the discount rate less the dividend growth rate
Internal Growth rate
ROE x Retention Rate
Retention Rate = 1 minus payout rate
Valid methods of valuation include
1) multiples of sales
2) Multiple of earnings
3) Multiple of cash flow
4) Multiple of book value
5) commissions
6) EBITDA
super normal DDM
valuation method but it requires the firm pay a dividend to be utilized.
Bond prices move
inversely with interest rates
When interest rates increase, bond prices fall (decrease)
lower bond price will result
in higher current yields and eventual capital gains which increases the bond’s YTM
Preferred stock is an example of
perpetuity
To Value Perpetuity
Annual Dividend / required rate of return
Taxable equivalent yield
Muni Tax / 1 - tax rate