BBG 101 Lecture Notes - Lecture 10: Cash Flow, Capital Budgeting, Working Capital

• School: Tunxis Community College
• Department: Business – General
• Course: BBG 101
• Professor: Boccaccio

Document Summary

Value of a share is equal to the future discounted cash flows from owning the share. Ordinary share dividends are not usually constant. Current value of a share is present value of all future dividend payments. P0 = d1/ (1 + r) + d2/ (1 + r)2 + d3/ (1 + r)3 + d4/ (1 + r)4 + . Dt = the expected dividend payment at time t. P0 = the value of the share at time zero (pv) R = the appropriate discount rate (i) Constant growth model if dividends are expected to change at the same (constant) rate then the share price is given by. P0 = d1 / (r g) D1 is the dividend at time 1. (next year"s dividend) d1 = d0 (1 + g) A financial manager"s goal is to maximise shareholder wealth. The process of selecting new projects or assets is not a simple task.