Important Points for IC 99 - Asset Management Exam
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Liquidation Value per share is equal to : (Value Realisable from all assets on liquidation - Amount payable to Creditors and Preference Shareholders)
The replacement costs here signify the market value of assets and liabilities at the time of valuation. Replacement Cost Technique appears to be realistic since it signifies the market value of assets and liabilities. However this technique is not accepted such because of certain limitations.
Dividend Discount Model (DDM) finds the present value of future dividends of a company to derive the present market value of equity.
Single period valuation model is used where investors expect to hold equity for one year. The price of equlity share is calculated by applying the following formula : P? = D? / (1 + r) + P? / (1 + r)
Since equity shares have no maturity period, such shares may be expected to earn series of dividends for long term duration. Considering this aspect, Multi Period Valuation Model is used for equity valuation.
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