Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate EditionIII. Valuation of Future
Cash Flows(^292) 8. Stock Valuation © The McGraw−Hill
Companies, 2002
The success of the Nasdaq National Market as a competitor to the NYSE and other
organized exchanges can be judged by its ability to attract stock listings by companies
that traditionally might have chosen to be listed on the NYSE. Such well-known com-
panies as Microsoft, Worldcom, Apple Computer, Intel, Dell, Yahoo!, and Starbucks list
their securities on Nasdaq.
262 PART THREE Valuation of Future Cash Flows
You can actually watchtrading take place on the Web by visiting
one of the biggest ECNs, Island (www.island.com). Island is somewhat
unique in that the “order book,” meaning the list of all buy and sell orders,
is public in real time.
As shown, we have
captured a sample of the
order book for Dell Com-
puter. On the left side are
buy orders (bids); sell or-
ders (asks) are on the
right. All orders are “limit”
orders, which means that
the customer has specified
the most she will pay (for
buy orders) or the least
she will accept (for sell or-
ders). The inside quotes
(the highest bid, or buy,
and lowest ask, or sell) in
this market are the ones on
the top, so we sometimes
hear the expression “top
of the book” quotes.
If you visit the site, you
can see trading take place
as orders are entered and
executed. Notice that on
this particular day, by
about 4:00 P.M., Island had
traded about 2.7 million
shares. At that time, the in-
side quotes for Dell were
7,144 shares bid at $18.05
and 1,500 shares offered
at $18.09.
Work the Web