This chapter has covered the basics of stocks and stock valuation. The key points include:
The cash flows from owning a share of stock come in the form of future dividends.
We saw that in certain special cases it is possible to calculate the present value of all
the future dividends and thus come up with a value for the stock.
As the owner of shares of common stock in a corporation, you have various rights,
including the right to vote to elect corporate directors. Voting in corporate elections
can be either cumulative or straight. Most voting is actually done by proxy, and a
proxy battle breaks out when competing sides try to gain enough votes to have their
candidates for the board elected.
In addition to common stock, some corporations have issued preferred stock. The
name stems from the fact that preferred stockholders must be paid first, before
common stockholders can receive anything. Preferred stock has a fixed dividend.
The two biggest stock markets in the United States are the NYSE and the NASDAQ.
We discussed the organization and operation of these two markets, and we saw how
stock price information is reported in the financial press.
This chapter completes Part 4 of our book. By now, you should have a good grasp of what
we mean by present value. You should also be familiar with how to calculate present values,
loan payments, and so on. In Part 5, we cover capital budgeting decisions. As you will
see, the techniques you have learned in Chapters 4–7 form the basis for our approach to
evaluating business investment decisions.
