FINC 3610 Dismukes exam 3\\\FINC 3610
Dismukes Exam 3 2025 – Complete Study Guide &
Key Concepts
Challenges in valuing stock
-Not even promised cash flows are known in advance
-Life of investment essentially forever since stocks have no maturity date
-No way to easily observe the rate of return that the market requires
The price of a bond is equal to _______ _______ of the bonds ______ cash flows
Present, Value, Future
The price (value) of a share of stock is equal to the ______ ______ of the stocks ______ cash flows
Present, Value, Future
Common stock cash flows
-Dividends
-Price we sell for
3 Types of dividends
-No/zero growth
-Constant growth
-Non-constant growth
No/Zero Growth
-Dividends do not increase in dollar amount
-D1=D2=D
-Dividends are paid every period forever
Constant Growth
-Dividends increase at a fixed rate each period
-D1=D0x(1+g)
-D2=D1x(1+g)=D0x(1+g)^2
-Dividends are paid every period forever
Non Constant growth
-Dividends have supernormal growth for some period of time, then slow down and grow steadily
thereafter, or
-Dividends grow erratically for a period of time, then grow steadily thereafter
-The firm does not pay dividends, but begins to in the future
, 3 Steps for non-constant growth problem
-Draw timeline with cash flows
-Deal with the right hand side
-Bring it all back to zero
Dividend Yield
the dividend income portion of a stock's return
Capital Gains Yield
The price change portion of a stocks return
How do you estimate the dividend growth rate
-Historical growth rates
-Accounting measures of growth
-Analysts forecasts
Market multiples
Pt Benchmark PE ratio x EPS t
Common stock
-Voting rights
--Majority voting
--Cumulative voting
Preferred stock
-No voting rights
-Dividends
--Cumulative
--Non Cumulative
-Stated liquidating value
Equity
-Ownership interest
-Common stockholders vote for the board of directors and other issues
-Dividends are not considered a cost of doing business and are not tax deductible
-Dividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paid
-An all-equity firm cannot technically go bankrupt; but it still could become insolvent and forced to shut
down
NPV
Net Present Value
What is NPV a measure of?
Dismukes Exam 3 2025 – Complete Study Guide &
Key Concepts
Challenges in valuing stock
-Not even promised cash flows are known in advance
-Life of investment essentially forever since stocks have no maturity date
-No way to easily observe the rate of return that the market requires
The price of a bond is equal to _______ _______ of the bonds ______ cash flows
Present, Value, Future
The price (value) of a share of stock is equal to the ______ ______ of the stocks ______ cash flows
Present, Value, Future
Common stock cash flows
-Dividends
-Price we sell for
3 Types of dividends
-No/zero growth
-Constant growth
-Non-constant growth
No/Zero Growth
-Dividends do not increase in dollar amount
-D1=D2=D
-Dividends are paid every period forever
Constant Growth
-Dividends increase at a fixed rate each period
-D1=D0x(1+g)
-D2=D1x(1+g)=D0x(1+g)^2
-Dividends are paid every period forever
Non Constant growth
-Dividends have supernormal growth for some period of time, then slow down and grow steadily
thereafter, or
-Dividends grow erratically for a period of time, then grow steadily thereafter
-The firm does not pay dividends, but begins to in the future
, 3 Steps for non-constant growth problem
-Draw timeline with cash flows
-Deal with the right hand side
-Bring it all back to zero
Dividend Yield
the dividend income portion of a stock's return
Capital Gains Yield
The price change portion of a stocks return
How do you estimate the dividend growth rate
-Historical growth rates
-Accounting measures of growth
-Analysts forecasts
Market multiples
Pt Benchmark PE ratio x EPS t
Common stock
-Voting rights
--Majority voting
--Cumulative voting
Preferred stock
-No voting rights
-Dividends
--Cumulative
--Non Cumulative
-Stated liquidating value
Equity
-Ownership interest
-Common stockholders vote for the board of directors and other issues
-Dividends are not considered a cost of doing business and are not tax deductible
-Dividends are not a liability of the firm and stockholders have no legal recourse if dividends are not paid
-An all-equity firm cannot technically go bankrupt; but it still could become insolvent and forced to shut
down
NPV
Net Present Value
What is NPV a measure of?
