HTA 602 Lecture 8: Ch 8 Cash Flows for Shareholders

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

If you buy a share of stock, you can receive cash in two ways. You sell your shares, either to another investor in the market or back to the company. As with bonds, the price of the stock is the present value of these expected cash flows. Suppose you are thinking of purchasing the stock of moore oil, inc. and you expect it to pay a dividend in one year and you believe that you can sell the stock for at that time. Compute the pv of the expected cash flows. Price = (14 + 2) / (1. 2) = . 33. Or fv = 16; i/y = 20; n = 1; cpt pv = -13. 33. In addition to the dividend in one year, you expect a dividend of . 10 in two years and a stock price of . 70 at the end of year 2. Pv = 2 / (1. 2) + (2. 10 + 14. 70) / (1. 2)2 = 13. 33.