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7 VALUING EQUITY INSTRUMENTS

SUMMARY
Pnie a
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ordinary share shoe
per onwhat
owner has ordinary shareof dividends Myymymphwww marketexpectsfiveCE's

right tovole on directors andmerges tobe AND how


shareholderrights Time marketdiscounts it
1 Annual meeting obstacleswhen valuingEquity expectation
a Proxy e IncorrectDala
3 Proxy contest a Uncertaintiesof future
g Irrational behaviourof market
Preferenceshares
rank higherthanordinaryshares Security Analysis determine
if currentvalue is adequate notexactvalue
cumulative upaid dividends paid Goal buy security that is less than Intrinsicualutm
inthe future and provides muarghnofusafesty valueofstock
Noncumulative misseddividends Equity Valuation a company noreference
denot accumulate of
margin error the
large better toilsmarketvalue
yand
Dividend discount Discounted CashFlow

Total PayoutModel model


value ofstock is present valueof expected
DIVIDEND DISCOUNT MODEL future dividends
Twotypesof Ct's
1 Dividends Div
2 Expected price Pn attheendof holdingperiod

One Year Investor


Saskia
Po
a repay Dividend
stock today

PriceToday DN
p It re

Price at anytime t

Pz
DwCt DtPc
It re
re EQUITY cost of CAPITAL
what is used to discount
morerisky higher disownrate pucefalls

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