FIN101 What did we learn today?

Stock valuation

  • Three methods to obtain the price per share:
    1. Constant growth dividend discount model (CGM): P0 = D1/(Rs-g)
    2. Discounted free cash flow model (DCF): V0 = FCF1/(WACC-g) plus several other steps to arrive at P0
    3. Market multiple analysis:  Pibm = Eibm * (P/E industry); Vibm = EBITDAibm * (V/EBITDA industry)
  • Preferred stock: a perpetuity Pps = Dps / Rps

Risk and return

  • Sum vs. product notation
  • Differences between historical return (geometric mean), expected return, required return
  • Read the risk & return presentation

 

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