MAC3702 VALUATION NOTES

Valuations Notes
DEBT
Non-redeemable Debentures, bonds and preference shares

(non-redeemable bonds or notes.)

VALUE =
COUPON PMT
REQUIRED RATE

Redeemable debentures and bonds

VALUE =PV
Where: PMT =face value X coupon rate
I= required rate/similar market yield
N=period until redemption
FV=Face value




m
er as
Cumulative preference shares




co
eH w
VALUE =

COUPON PMT




o.
REQUIRED RATE
rs e
ou urc
PV may be required if there’s a break in the payment of dividends

Non-Cumulative preference shares
o
aC s
v i y re



COUPON PMT
REQUIRED RATE
NO PV as not cumulative.
ed d
ar stu




ORDINARY EQUITY

1.Dividend Discount Model.
sh is




VALUE =
Th




D 1 ( NEXT DIVIDEND ) i . e ¿
K ( COST OF EQUITY ) −G(GROWTH RATE)
*Dividend cover means the number of times profit should cover the dividends

e.g. If dividend cover is 2, divide profit by 2 to determine dividend




Limitations
The model is limited in the following respects:
■ It assumes that growth is constant.




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