Summary
Summary Basic Valuation
- Institution
- University Of Cape Town (UCT)
Summary of 4 pages for the course Corporate Financial Management at UCT (Complete summary)
[Show more]
2 reviews
By: mthobisikwenzokuhle • 1 year ago
By: maryamgopal • 3 year ago
Content preview
MODULE 7: BASIC VALUATIONSValuation
Process of estimating how much an asset is worth
Fair value/ price or intrinsic value/price
Market Price: observed from market; consensus price from all traders
Intrinsic Price: self-assigned value; varieties of models used for estimation
Efficient Markets Inefficient Markets
Low costs, easy to transact (operational Opposite
efficiency)
MP fully reflects all info (informational Opposite
efficiency)
MP = IP ; not exactly but close MP deviates from IP (results in
over/under-priced market instruments)
Efficient Capital Market: market where prices reflect the knowledge and expectations of
all investors
Levels of Market Efficiency
Strong-form efficiency
Theory that security prices reflect all available information
Semi-strong-form efficiency
Theory that security prices reflect all public information but not private
Weak-form efficiency
Theory that security prices reflect all information in past prices but not reflect all
private/public information
Valuing Financial Assets
1. Relative valuation
2. Discounted cash flow techniques
3. Net asset valuation
4. Liquidation valuation
Discounted Cash Flow Techniques
Finding the PV of all future benefits (cash flows) of asset
Steps
1. Determine future cash flows 𝑉0 =
𝐶𝐹1
+
𝐶𝐹2
+⋯
2. Determine discount rate (1 + 𝑟)1 (1 + 𝑟)2
3. Present value using discount rate
BONDS/DEBENTURES
Bond
Long term debt instrument used to raise finance
Fixed income security that pays constant stream of income (i.e. coupon, interest or
preferred dividend)
Borrower/Issuer Lender/Investor
Sells to lender Pays bond SP
Pays interest to lender
Repays principal at end
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller UCTstudent. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
85443 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now