Management and Organizational Studies 2310A/B Lecture Notes - Lecture 6: Preferred Stock, Stock Market, Capital Budgeting

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

Cash flows for shareholders: if you buy a share of stock, you can receive cash in two ways. Gordon growth company - example 1: gordon growth company is expected to pay a dividend of in one year and dividends are expected to grow at 6% per year. What is the price expected to be in year 4: p4= (d4(1+g))/ (r-g) = d5/(r-g) = 4(1+0. 06)4/(0. 16-0. 06) = 50. 50: what is implied return given the change in price during the four year period, 50. 50=40(1+r)4; r=6, the price grows at the same rate as the dividends. Example- non-constant dividend growth: **use timeline, suppose a rm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per yer inde nitely. Dividend characteristics: paid after tax, dividends are. Chapter 9 net present value and other investment criteria. Computing npv for the project: using the formulas, npv =