Valuation of Financial Assets: Shares - ACST1001 Finance Fundamentals

These flashcards cover the key concepts of share valuation, dividend models, and the characteristics of ordinary and preference shares.

The value of a financial asset should equal the present value of the expected __ from owning it.

cash flows

Ordinary shareholders have the __ claim on a firm’s assets in the event of liquidation.

lowest

Preference shares have preferential treatment over ordinary shares in certain __.

matters

The required rate of return on ordinary shares cannot be __ directly.

observed

To value a share, we need to know the expected __ and the appropriate discount rate.

cash flows

Ordinary shares give their owners rights to any ordinary __ and voting privileges.

dividends

Preference shareholders do not receive voting __, unlike ordinary shareholders.

privileges

The Dividend-Discount Model calculates a share’s value based on its expected future __.

dividends

The growth rate in dividends can be calculated as __ rate multiplied by the return on new investment.

retention

A firm can increase its dividend by increasing its earnings or __ its dividend payout rate.

increasing

If the firm's growth rate exceeds the equity cost of capital, the present value of dividends becomes __.

negative

The constant dividend growth model calculates the value of a share as __ divided by the equity cost of capital minus growth rate.

dividend

The formula for estimating the required rate of return, rE, is __.

Div1/P0 + g

Many firms, including major tech companies, do not pay __.

dividends

Investors will buy or sell a share based on their own __ and the market's expectations.

expectations