# AUTO CAR

## Common stock

Common stock-Common stock
Common stock-COMMON STOCK VALUATION Concept: Understand how common stocks are valued. There are basically three ways of valuing common stock: 1) using the present value of future dividends, 2) using the

COMMON STOCK VALUATION

Concept: Understand how common stocks are valued.

There are basically three ways of valuing common stock: 1) using the present value of future dividends, 2) using the present value of free cash flow, and 3) using the present value of current activities + the present value of growth opportunities. Here, we look at each of these methods individually.

Objectives:

• Understand and define how common stocks are valued
• Discuss and demonstrate how common stocks are valued by future div >Suggested Grades:

STOCK VALUATION LESSON PLAN

Lesson – Common Stock Valuation (see below for printable lesson)

Many pre-calculated examples

1. What is common stock?
• Ask >Bring in the financial section of the local newspaper
• look at the different stocks currently traded
• ask >Method 1: PV of future dividends
• introduce constant div >Method 2: PV of free cash flow
• explain free cash flow
• Introduce formula
• work through examples
• Method 3: PV of current activities + PV of growth opportunities
• talk about relationship between current activities and EPS
• look at formula for PV of current activities and work through examples
• introduce PVGO
• Ask class to consider high PV versus low PV â€“ which offers a better deal?
• Calculate PE ratios â€“ bring in newspaper stock listing that include PE ratios â€“ pick out those stocks the class would buy based on PE

Assessment/Evaluation
Have students complete worksheet. A passing grade is 70% or greater.

Print out the teaching lesson pages and exercise worksheets for use with this lesson:

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### Common stock

SOURCE: http://www.moneyinstructor.com/lesson/stockvaluation.asp