VALUATION OF LONG TERM SECURITIES (SHARE)

VALUATION OF LONG TERM SECURITIES (SHARE)

SHARE:

Preferred share (Fixed dividend)
Common shre  (No fix dividend)

Preferred Share Formula:
VP = DP/KP 

Vp= Preferr Share Value
Dp= Fixed dividend amount
Kp= Market rate of return/yield(extra return)/required rate of return

COMMON SHARE FORMULA:

1) Genneral formula for common share
                     1                               n
V=D1/(1+Ke) +...........Dn/(1+Ke)
V= Value of common Shares
D1= Dividend for first year
D2=Dividend for 2nd year
D3= Dividend for 3rd year
.
.
.
so on
Ke=market rate of return

2) COMMON SHARE VALUATION MODELS

Constant Growth Model
Variable growth Model

Constant rate:
V=D1/Ke-g
g=growth rate

According to this model the value of divided amount is increased cash year with a constant rate

                    1                               n
V=D1/(1+Ke) +...........Dn/(1+Ke)
According to this model the value of dividend amount will grow with a variable rate.

Note:
V=D1/Ke-g       D1=Do(1+g)

If the following words are used in the question such as dividend for the first year, dividend for the next year or dividend for the coming year it means that D1 is given other wise Dividend.

FINANCIAL MANAGEMENT
DECISION AREA OF FINANCIAL MANAGEMENT
AGENCY PROBLEM
TYPES OF BUSINESS
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EXAMPLES AND FORMULA TIME VALUE OF MONEY
CASH FLOW,SUM,SERIES OF CASH, ANNUITY AND MIX STREAM
ANNUITY TYPES AND FORMULA
AMORTIZATION SCHEDULE OR TABLE WITH EXAMPLE
EFFECTIVE INTEREST RATE WITH EXAMPLE
VALUATION OF LONG TERM SECURITIES (BONDS)
TYPES OF BONDS
BONDS FORMULA,ZERO COUPON PERPETUAL
VALUATION OF LONG TERM SECURITIES (SHARE)
CASH AND MARKETABLE SECURITIES MANAGEMENT
MANAGING CASH INFLOW AND OUTFLOW
SECURITIES MANAGEMENT
SHORT TERM FINANCING
SPONTANEOUS LABILITIES
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CAPITAL BUDGETING
CAPITAL BUDGETING TECHNIQUE
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INTERNAL RATE OF RETURN TECHNIQUE
ACCOUNT RECEIVABLE MANAGEMENT
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FORCASTING

MBA NOTES FINANCIAL MANAGEMENT