Stocks Valuation and Calculation, Thesis of Business Accounting

Download Stocks Valuation and Calculation and more Thesis Business Accounting in PDF only on Docsity! 1 Assessment 5: Stocks Valuation Capella University BUS-FP3062 Stocks Valuation 1. Individuals owning common shares are viewed as the legal owners of a company. As a result, common shareholders have specific rights and privileges governed by the state's law 2 where the company headquarters are stationed. There are four common rights of shareholders; right to vote during the general elections, right to get a portion of profitability, right to participate in corporate management and policy, and right of purchasing new shares. Voting right in general elections is the most significant right amongst shareholders, and it is the. Ity to cast a vote based on the shareholder's annual general elections (Mallin&Melis, 2010). In most companies, vote power is based on the number of shares that the voter owns. The more the shares, the more the influence. Shareholders who are the partial owners of a company can share their profitability based on the share numbers. Besides, shareholders also have a right to receive dividend payments though it is not always guaranteed. However, if the company is liquefied, shareholders have a right to income and assets after payment of preferred shareholders, and bondholders are paid. Shareholders influencemanagement by exercising their voting right when electingboards of the company. The most significant shareholder is the presidentIn some companies, while in the larger companies, there is a more considerable diversity in the common pool of investment hence influencing accountability (Armour, 2020). In either case, shareholders have a right to influence who holds positions in the board members' election. Shareholders have primitive rights in buying new shares whenever they advertise to the public on new shares availability. The existing shareholders are issued with the priority before the potential shareholders. Primitive rights may be valuable to the shareholders as they are given at subscribed prices based on each share. 5 usually lower than those of preferred stock. If a company fails to pay dividends, preferred shareholders' arrears are paid before paying any common shareholder. Preferred shares contain a callability feature awarding the stock issuer authority to redeem the stocks but at the end of predetermined period. Preferred shares are convertible to a fixed number of common shares, but common shares do not have that ability. Imagine that on June 4th, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day's close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4th. Dow Jones industrial average measures stock index that indicates value of the largest 30 US companies across sectors. Its price-weighted average of the 30 biggest companies. Closing index value on 3rd June=13,449.28 is the starting price on June 4th Closing index on June 4th =13,598.14 Return of stock market = ENDING PRICE−OPENING PRICE OPENING PRICE ×100. June 4 DJIA return= 13,598.14−13,449.28 13,449.28 ×100=1.1068% The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22. 6 Amount needed to acquire 150 shares=number of shares × ⟨stock trading price+brokerage fee. ⟩ Money needed to purchase 150 shares=150× $ ⟨18.22+0.10 ⟩=US $2,748.00 HiTech, Inc.'s growth for the future is forecasted to be a constant 10 percent. HiTech's next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent. Using the constant growth model, .that is the Gordon model of growth. Stocks Value (V) = D1 ( K−G ) Where D1 is a dividend in the next period, which is the US $ 1.18, k is the required stock return, which is 12%, while G is the growth rate equal to 10% Value of stock¿ 1.18 (0.12−0.1 ) =US $ 59.00 Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent Value of preferred stock ¿ ANNUAL DIVIDEND REQUIRED RATE OF RETURN = 1.20 0.045 =US $26.6667 The present value of its future payments of dividends is discounted at the required stock return rate, mostly perpetual. 7 HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price. P/E ratio¿ STOCK PRICE EARNINGS PER SHARE . Rearranging this formula to give the stock price Stock price per share¿ price earnings ratio ×earnings per share. That is multiplying the stock price-earnings ratio by corresponding earnings per share. Market stock price¿31.54 ×1.82=US $ 57.4028