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FA - Chapter 9
Stocks and Their Valuation
21
Business
Undergraduate 2
04/17/2011

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Term
Proxy
Definition
A document giving one person the authority to act for another, typically the power to vote shares of common stock.
Term
Proxy Fight
Definition
An attempt by a person or group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote its shares to replace the current management.
Term
Takeover
Definition
An action whereby a person or group succeeds in ousting a firm's management and taking control of the company.
Term
Preemptive Right
Definition
A provision in the corporate charter or bylaws that gives common stockholders the right to purchase on a pro rata basis new issues of common stock (or convertible securities).
Term
Classified Stock
Definition
Common stock that is given a special designation such as Class A or Class B to meet special needs of the company.
Term
Founders' Shares
Definition
Stock owned by the firm's founders that has sole voting rights but restricted dividends for a specified number of years.
Term
Marginal Investor
Definition
A representative investor whose actions reflect the beliefs of those people who are currently trading a stock. It is the marginal investor who determines a stock's price.
Term
Market Price
Definition
The price at which a stock sells in the market.
Term
Growth Rate
Definition
The expected rate of growth in dividends per share.
Term
Required Rate of Return
Definition
The minimum rate of return on a common stock that a stockholder considers acceptable.
Term
Expected Rate of Return
Definition
The rate of return on a common stock that a stockholder expects to receive in the future.
Term
Actual (Realized) Rate of Return
Definition
The rate of return on a common stock actually received by stockholders in some past period.
Term
Dividend Yield
Definition
The expected dividend divided by the current price of a share of stock.
Term
Capital Gains Yield
Definition
The capital gain during a given year divided by the beginning price.
Term
Expected Total Return
Definition
The sum of the expected dividend yield and the expected capital gains yield.
Term
Constant Growth (Gorgon) Model
Definition
Use to find the value of a constant growth stock.
Term
Zero Growth Stock
Definition
A common stock whose future dividends are not expected to grow at all; that is, g=0.
Term
Supernormal (Nonconstant) Growth
Definition
The part of the firm's life cycle in which it grows much faster than the economy as a whole.
Term
Terminal (Horizon) Date
Definition
The date when the growth rate becomes constant. At this date, it is no longer necessary to forecast the individual dividends.
Term
Horizon (Terminal) Value
Definition
The value at the horizon date of all dividends expected thereafter.
Term
Corporate Valuation Model
Definition
A valuation model used as an alternative to the discounted dividend model to determine a firm's value, especially one with no history of dividends, or the value of a division of a larger firm. The corporate model first calculates the firm's free cash flows, then finds their present values to determine the firm's value.
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