Valuation of Securities and Practical Issues OT

Question 1

Small number of shares in a quoted company

Answer 1

Dividend valuation model

Question 2

If we’re taking over the company?

Answer 2

We must offer a higher share price

Question 3

Dividend valuation model disadvantage

Answer 3

Dividends we expect and returns we acquire aren’t only factors. Poor estimation of future growth as no perfect market in real life

Question 4

Net assets basis menaing?

Answer 4

Look at value of net assets and divide by number of shares

Question 5

Book value and net assets basis?

Answer 5

Is meaningless and has no relation to current value of assets

Question 6

Realisable value and net assets basis?

Answer 6

Use values we can sell assets for. Gives minimum we are prepared to pay for taking over company

Question 7

Will shareholders except a lower price for what they can sell their assets for?

Answer 7

No

Question 8

Replacement value and net assets basis?

Answer 8

If I take over company, calculate how much it would cost to buy each asset. Represent maximum prepared to pay

Question 9

PE ratio analysis?

Answer 9

Find PE ratio of similar quoted companies. Then Multiply PE by the curernt earnings

Question 10

Why are unquoted companies have shares less expensive than quoted companies?

Answer 10

Shares aren’t as easy to buy and sell. Therefore use lower PE ratio

Question 11

What determines market value of shares?

Answer 11

What shareholders expect