“skillionaire, please explain how that is wrong.” *banging head on wall* Char-Lee, it’s wrong because it’s assuming that the DDM is anything more than a formula to remember for CFA Level I. Re-read your Level I text for the shortcomings of the formula, and then if you have questions we can debate all that you like.
skillionaire Wrote: ------------------------------------------------------- > > *banging head on wall* > hoping one of those blows will render skillionaire unconscious.
bryant Wrote: ------------------------------------------------------- > “buyout of the company share(s) which itself is > priced considering the future cash flows (i.e. > future dividends).” > > Char-Lee, I don’t mean to nit-pick, but you may > need to further qualify this statement. When > valuing a company for buyout/acquisition purposes, > the proper valuation metric would be the FCFF > rather than the dividend. This is primarily > because it is assumed that the acquirer will have > a controlling interest in the firm and thus can > control the dividend policy. > > Or maybe I misunderstood… no, you’re right and it is something I’ve tried to capture in my seemingly convoluted prior posts. I’m making a stretch here by calling FCFF a dividend suggesting that eventually those cash flows will reach the shareholders one way or another… I didn’t particularly like any of the four choices in Joey’s question, and thought that I could bend © to be the best answer. nola is right about ownership, but to me the way answer (a) was phrased seemed be distinguishing between assets in place and ignoring the company as a going concern. A “stock” is nothing more then the last hand in line for claims to the firm, and I believed the spirit of the question was getting at what constitutes the value of a stock. I’m leaving at that and going to open a nice cold beer.
Wow - good discussion. I especially liked the part where Char-Lee wished that skillionaire would knock himself unconscious. I would like to add that I would like the video of such a head-banging on YouTube.