The agenda covers common stock, common stock valuation methods, and two valuation models: the capitalization of income method and dividend discount model. Common stock represents ownership in a company and is used to raise permanent equity capital. Valuation methods include par value, book value, liquidation value, and market value compared to intrinsic value. The capitalization of income method values securities by discounting expected future cash flows using a required rate of return. The dividend discount model values a stock as the sum of all expected future dividend payments adjusted for risk and time value of money, using zero, constant, or multiple growth rate models.

1. AGENDA
Common stock
Common stock valuation
Capitalization of Income Method of
Valuation
Dividend Discount Model

2. COMMON STOCK
 Meaning:- It is a security that represent a share
of ownership in a company. An individual or
institutions who purchase the specific company`s
common stock, s/he or they become shareholders.
Company issue common stock to raise equity
capital, which is the permanent source of capital.
It does not have maturity vale.

3. COMMON STOCK VALUATION
 Par value:- par value of share reflects the legal
price of the share. In other words, it is stated
value in the common stock certificates.
 Book value:- The book value of a company is the
accounting value of the stockholder`s equity
which is known as balance sheet. It is the sum of
common stock outstanding, capital in excess of
par value, and retained earnings.

4.  Liquidation value:- It is the value that a company
could realize to sell its assets and distribute the
proceeds to creditors and shareholders.
 Market value:- It is current quoted price to buy or sell
the stock.
 Intrinsic value:- the intrinsic value or economic value
of a share is the present value of the cash flows that
the share will generate, discounted at the rate of
return appropriate for the risk of the company.

5. Comparison Situation Decision
Current Market Price ˃ Intrinsic Overpriced Sell or short sell
Value
Current Market Price ˂ Intrinsic Underpriced Buy
Value
Current Market Price = Intrinsic Correctly priced No action
Value

6. CAPITALIZATION OF INCOME
METHOD OF VALUATION
 Capitalization of Income Method:- It seeks to
determine the value of a security by discounting
all expected future cash flows using a required
rate of return.
It can be expressed mathematically as follows
Po= D1 + D2 + D3 +………+ D∞
(1+k)¹ (1+k)² (1+k) ³ (1+k)∞

7. DIVIDEND DISCOUNT MODEL
 Meaning:- It refers the value the stock is the
sum of all expected future dividend payments,
where the dividends are adjusted for risk and the
time value of money.
There are three growth rate models for they are:-
1. Zero growth model
2. Constant growth model
3. Multiple growth model