Overview Concerning Stock Valuation

Write a brief overview about stock valuation.  Your overview should include:

A brief explanation of the legal rights and privileges of common stockholders.

Identification of a formula that applies to the valuation of all stocks.

An explanation of what constitutes a “constant growth stock” and how it is valued.

Complete the following stock value calculations:

Assume that XYZ is a constant growth company whose last dividend was $2.00 with the dividend expected togrow at 6% indefinitely. Calculate the following:

The expected dividends for the next three years

The current stock price

The expected value in one year

The dividend yield, capital gains yield, and total return during the first year

Now assume that XYZ is expected to grow 30% for the next three years and then grow indefinitely at 6%.  Calculate the following:

The current stock price

The dividend yield and capital gains yield in the first year

Now assume that XYZ is a constant negative growthcompany whose last dividend was $2.00 with the dividend expected to grow at -6% indefinitely. Calculate the stock price.

Wrap up your analysis by explaining why investors would be willing to purchase the stock.

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