Ch 9

• preemptive right: existing shareholders get to purchase any new shares of stock issued
• preemptive right helps existing shareholders retain control
• preemptive right prevents new management from selling shares to itself
• classified stock has different classes of shares with different voting rights
• discounted dividend model determines value of stock to be present value of future dividends expected
• constant growth stock is stock whose dividends are expected to grow forever
• constant growth model can only be used if rs>g and g is expected to be constant forever
• if growth is 0, dividend stream would be a perpetuity
• corporation valuation model suggests value of entire firm is the present value of firm's free cash flows (market value of operations) + market value of non-operating assets
• Price to Earnings (P/E) Ratio: multiply firm's earnings per share by industry P/E to get estimated stock price
• P/E = stock price/EPS
• Enterprise Multiple = MV/EBIDTA
• EBITDA = earnings before interest, taxes, depreciation, and amortization