MODULE 3

Prof. Saptarshi Mukherjee

ISBR, Bangalore.

DOUBLING PERIOD

RULE OF 72 72/ INTEREST RATE RULE OF 69 0.35 + 69/INTEREST RATE

VALUATION OF EQUITY AND PREFERENCE SHARES

VALUATION OF EQUITY SHARES

A)DIVIDEND CAPITALISATION MODEL

B)CAPM

DIVIDEND CAPITALISATION MODEL

The value of an equity share is a function of the cash inflow expected by the investors and the risk associated

In general it is the present value of future stream of dividend and Terminal Values.

A) one period valuation model Hold for one year and sell Po = D1/1+Ke+P1/1+Ke

Two period valuation model Hold for two years and sell Po= D1/1+ke + D2/(1+ke)^2+P2/(1+ke)^2

C) n period valuation Po= D1/1+ke + Dn/(1+ke)^n+Pn/(1+ke)^n

PREFERED STOCK VALUATION

VALUE OF PREFERENCE SHARES

Vp=d/(1+kp)^1--------d/(1+kp)^n+ Pn/(1+kp)^n

Thank you….