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.
Understand and define how common stocks are valued
Discuss and demonstrate how common stocks are valued by future div >Suggested Grades:
Ninth Grade – Tenth Grade – Eleventh Grade – Twelfth Grade – College – Adult Education – Business Education
STOCK VALUATION LESSON PLAN
Lesson – Common Stock Valuation (see below for printable lesson)
Many pre-calculated examples
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
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
look at formula (add in div >Talk about P/E ratio
Ask class to consider high PV versus low PV – which offers a better deal?
Calculate PE ratios – bring in newspaper stock listing that include PE ratios – 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: