Kapitel 9 Flashcards

1
Q

What does the law of one price say?

A

The value of any security is the value of the expected cash flows received from owning it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the implication of the law of one price?

A

The valuation of a stock will not be dependent on the investment horizon.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the cash flows from owning a stock=

A

Dividends, selling the shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the price at which shares are sold?

A

The PV of future dividends and price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the discount rate for the PV in the dividend discount model?

A

The equity cost of capital, rE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the dividend yield of a stock?

A

The percentage return the investor expects to earn from the dividend paid by the stock. (Div1/P0)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the capital gain rate?

A

The difference between selling price and purchase price as a percentage of the purchasing price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How can the equity cost of capital be calculated?

A

The sum of the dividend yield and the capital gain rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What would happen id the return is higher than what investors could get elsewhere?

A

Other would buy it and the price would increase until it hold that the expected rE equals the sum of dy and capital gain.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How do you calculate price and rE with constant dividend growth? (dividend discount model)

A

P0 is calculated lika a normal perpetuity.

rE= dividend yield + growth rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the trade-off when increasing the share price?

A

Growth (investment) or increasing dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the dividend payout rate?

A

The fraction of its earnings that the form pays as dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How is the dividend calculated in the dividend discount model?

A

Divt= EPSt x DPRt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the retention rate?

A

The fraction of current earnings that the firm keeps.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Change in earnings

A

New investment x return on investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When will the growth in dividends equal the growth in earnings?

A

When the dividend payout rate stays constant.

17
Q

Earnings growth rate

A

change in earnings/earnings

Retention rate * RONI

18
Q

When will cutting dividends to invest increase the share price?

A

If the new investment has a positive NPV

19
Q

What are the limitations of the dividend discount model?

A
  • There is an uncertainty associated with the forecast of future dividends.
  • Small changes in the assumed dividend growth rate can lead to large changes in the estimated stock price.
  • Difficult to know which estimate of the dividend growth rate is more reasonable.
20
Q

What are the implications of share repurchasing?

A

Less money to pay dividends and decreases the share count.

21
Q

How is share price calculated in the total payout model?

A

PV of future total dividends and repurchases divided by shares outstanding

22
Q

What is the enterprise value?

A

market value of equity + debt - cash

23
Q

FCF

A

EBIT x tax rate - net investment - increases i NWC

24
Q

Net investments

A

Depreciasion - capital expenditures

25
What is the market value of equity? V0
The PV of FCF
26
What is the discount rate in the discounted FCF model?
The wacc
27
What is the wacc?
An average of the equity cost of capital and the debt cost of capital