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Stocks and Their Valuation Paper

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NOTE 9: STOCKS AND THEIR VALUATION  Some Features of Common and Preferred Stocks  The Stock Markets  Common Stock Valuation I. Some Features of Common and Preferred Stocks Common Stock • Equity without priority for dividends or in bankruptcy. Preferred Stock • Stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting right. II. Shareholder Rights -- One share, one vote (a.) Cumulative Voting  A procedure that a shareholder may cast all votes for 1 member of the Board of Director.  It permits minority participation. (b.) Straight Voting  The procedure that a shareholder may cast all votes for each member of the Board of Director.  The shareholders with largest share amount will elect all Board of Directors. (c.) Proxy Voting  A grant of authority by a shareholder allowing another individual to vote that shareholder’s shares. (d.) Other Rights  Right to share proportionally in dividends or assets  Right to vote on important matter  Preemptive right -- Right to share proportionally in new stocks sold III. Dividends • Not a liability • Paid out of after tax income • Fully taxable for individual • Exclusion for corporation – 0% ≤ own stocks ≤ 20% -- exclude 70% – 20% < own stocks < 80% -- exclude 80% – 80% ≤ own stocks ≤ 100% -- exclude 100% 1 IV. Stock Markets • Primary Market • Secondary Market • Dealers --Agents w ...
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