金融学教学课件bodie2echapter09

Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall1Chapter 9:Valuation of Common StocksObjectiveExplain equity evaluation using discountingDividend policy and wealth Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall2Chapter 9 Contents9.1 Reading stock listings9.2 The discounted dividend model9.3 Earning and investment opportunity9.4 A reconsideration of the price/earnings multiple approach9.5 Does dividend policy affect shareholder wealth?Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall39.1 Reading Stock Listings The following newspaper stock listing is usually printed as a horizontal string of information The listing is for IBM,which is traded on the New York Stock ExchangeCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall4Reading Stock ListingsYr HiYr LoStockSym123 1/8 93 1/8IBMIBMDivYld%PEVol 1004.844.21614591Day HiDay LoCloseNet Chg115113114 3/4+1 3/8Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall5Reading Stock Listings Hi=123 1/8:The highest price the stock has traded at over the last 52 weeks Lo=93 1/8:The lowest price the stock has traded at over the last 52 weeks Stock=IBM:The stocks name Sym=IBM:The stocks symbolCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall6Reading Stock Listings Div=4.84:The last quarterly dividend multiplied by 4 Yld%=4.2:Dividend yield;(Annualized dividend stock price)PE=16:Price-to-earnings;(Latest price last 4 actual dividends)Vol 100s=14591*100;Volume of exchange traded sharesCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall7Reading Stock Listings Hi=115:Highest share price of the day Lo=113:Lowest share price of the day Close=114 3/4:Days closing share price Chg=1 3/8:Change in closing price from previous trading dayCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall8Observation It is usual to trade shares in of 100 shares If you decide to trade shares as you will pay higher commissions Stock splits and stock dividends can cause you to hold odd lotsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall99.2 The Discounted Dividend Model A is any model that computes the value of a share of a stock as the present value of the expected future cash dividendsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall10Equivalence of HPR and NPV The book starts from the holding period return,and uses an inductive argument to derive the NPV method for evaluating stocks Equivalently,we start with the discounted cash flow model,and obtain the holding period returnCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall11Notation Pj is the stock value in year j Dj is the cash dividend in year j K is the required rate of return on the stockCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall12Present Value of Dividends 00111111113423121114433221101111.111111.1111PPPDkkPDPkkDkDkDkDkkDkDkDkDkDPCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall13Expected Rate of Return The price and dividend next year are expected prices,so HPRPDPPPPPDk01010011)(Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall14Rate Relationship This relationship tells you that next years expected dividend yield+the expected capital gain yield is equal to the required rate of return001010011PPPPDPPPDkCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall15Price0 Is Discounted Expected(Dividend1+Price1)Price is of the expected dividend plus the end-of-year price discounted at the required rate of returnkPDP1110Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall16Ease of Use Estimating next years dividend is straightforward,but estimating next years price appears to be much more The problem is that next years price is obtained(eventually)by estimating,and discounting,every future dividendCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall17Ease of Use We have to introduce a assumption that captures our understanding of dividend behavior The second simplest assumption is that a dividend in any future year is the dividend in the prior year times a constant growth factor(1+g)Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall18Ease of Use Think of this as some kind of dividend inflation From chapter 5 we know that if k is the nominal discount rate,then the real discount rate,R,is given by R=(1+k)/(1+g)-1Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall19Ease of Use Recall from chapter 4 that,for a perpetuity,the present value is the real value of the first cash flow divided by the real rateCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall20Putting This Together gkDgkDgkgDRgDp1111011111)1()1(Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall21Solving for KgpDkgkDp0110Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall22 G=Capital Gains Yield Comparing prior results:0010010101&PPPgPPPPDkgpDkCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall23Conclusion The capital gains yield is equal to the dividend growth rateCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall24Generalization This model captures many of the characteristics of dividend cash flows You could next assume that the rate of growth,g1,is valid from a1 to b1,followed by g2 from a2(=b1+1)to b2,.Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall259.3 Earning and Investment Opportunity A second approach to DCF（Discounted Cash Flow）valuation focuses on and This focus,rather than the earlier dividend focus,concentrates the analysts attention on the core business determinants of valueCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall26Earning and Investment Opportunity To simplify the analysis,suppose that no new shares are issued,and no taxes1110111tttttttttkIkEkDpCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall27Interpretation The value of a company is equal to the present value of its expected earningsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall28Interpretation Net new investment may be positive or negative The loss of existing asset value may not always be compensated by new investment,such as firms in a declining industry.Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall29P(1)the present value of the current levinvestmentfurure1NPVkEPoCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall30I NCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall31Nogrowth Nogrowth Co has a policy of no net new investmentsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall32Nogrowth If the real capitalization rate is 15%,then the value of Nogrowth is 15/0.15=$100Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall33Growth Stock Growthstock Co initially has the same earnings as Nogrowth,but reinvests 60%of its earnings each year into new investments that yield a real rate of return of 20%per yearCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall34interpretation Growthstock will pay out only 40%of$15,or$6 per share beginning next period.The other$9 per share are reinvested in the firm to earn a rate of return of 20%per year.The growth rate of dividends per share isirrsinvestmentnewonreturnofraterateretentionearningsgCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall35Solution Method Using the growth perpetuity PV formula from Chpt4:The increase in the value of the stock is the consequence of reinvestment at a than the investor required rate of return200$20.0*6.015.06PriceCost of CapitalRetention RatioGrowth RateCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall36Another example:Normalgrowth Normalgrowth has investment opportunities of 15%,but still reinvests 60%of the earningsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall37Reinvestment Under Normal Growth100$15.0*6.015.06PriceRetention RatioGrowth RateCost of CapitalCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall38Reinvestment Under Normal Growth In this case there is no increased value to the shareholders See table 8.3,and the graph on next slide.Even though the earnings per share,dividends per share,and the price of Normal Growth are expected to grow at 9%per year,this growth does not add any value to the firms current stock price beyond what it would be if all of its earnings are paid as dividends.The reason is that the rate of return on reinvestment is equal to the market capitalization rate.Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall39Nogrowth andNormalprofitCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall40T GkEP/10Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall419.4 Reconsideration of the Price/Earnings Multiple Approach The formula for a growing perpetuity is:investmentfurure111NPVkEkPgkEPgkEPoooCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall42A Reconsideration of the Price Multiple Approach Recall the P0=e1/k+NPV of future investmentsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall43A Reconsideration of the Price Multiple Approach Stocks that have relatively high P/E ratios because their future investments are expected to earn rates of return the market capitalization rate are called Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall449.5 Does Dividend Policy Affect Shareholder Wealth?Dividend policy of a corporationCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall459.5 Does Dividend Policy Affect Shareholder Wealth?In a frictionless world where there are no taxes nor transaction costs,the dividend policy will have no effect on the wealth of stock holders We shall examine:tax,regulations,cost of external financing,and information content of dividendsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall46Cash Dividends and Share Repurchases A corporation may distribute cashCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall47Illustration:Dividend Payment The following table shows a simplified balance sheet of Cashrich Co AssumeCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall48Illustration:DividendsAssetsLiabEquCash 2Debt 2Other10Equity10Total12Total12Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall49Illustration:Dividend Payment If Cashrich declares a dividend of$2/share it will pay 500,000*$2=$1,000,000Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall50Illustration:Dividend PaymentAssetsLiabEquCash 1Debt 2Other10Equity 9Total11Total11Was 2Was 10Were 12Were 12Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall51Illustration:Dividend Payment Before the dividend,every share was worth$20 After the$2/share dividend,every share was worth$18 ConclusionCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall52Illustration:Share Repurchase The original balance is shown belowCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall53Illustration:Share RepurchaseAssetsLiabEquCash 2Debt 2Other10Equity10Total12Total12Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall54Illustration:Share Repurchase The company repurchases 50,000 shares at$20 per share=$1,000,000Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall55Illustration:Share Repurchase The share price is then$9,000,000/450,000=$20Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall56Illustration:Share RepurchaseAssetsLiabEquCash 1Debt 2Other10Equity 9Total11Total11Was 2Was 10Were 12Were 12Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall57Stock split Corporations sometimes declare a stock split and distribute stock dividends These activities do not distribute cash to the shareholders They increase the number of issued shares,but do not change the%of the company each shareholder ownsCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall58Modigliani and Miller In a frictionless environment,where there are no costs of issuing new shares of stock,nor costs of repurchasing existing shares,a firms dividend policy can have no effect on the wealth of current shareholders.Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall59Modigniani-Miller theoremCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall60In the real world There are a number of frictions that can cause dividend policy to have an effect on the wealth of shareholders.To list a few:Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall61The Real World:Share Repurchase Smart Co has had a good year,and is considering repurchasing some outstanding stock in order to prevent some of its shareholders paying personal income tax on the dividend There are restrictions on this kind of practice in many countries,including the USACopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall62The Real World:Retaining Surplus Cash to Shelter It Smart Co has had a good year,but is considering not declaring a dividend to prevent its shareholders pay tax.Smart doesnt need the cash,but holding extra cash tax-shelters the shareholders IRS rules provide huge penalties for this kind of activity.Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall63The Real World:Asymmetric Information The management of Cryptic Co is concerned that the investment community does not understand its business It has decided to finance projects using cheaper rather than issuing more stock at a discount from its“true”market valueCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall64The Real World:Signaling The management of Trip Co has had a single bad year,but has decided not to reduce its dividend,because Reducing the dividend may send a signal to the investment community saying: