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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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4.5 VALUATION OF ORDINARY SHARES

The valuation of ordinary shares is not so easy as that of bonds and preference shares. The reason being that the dividend on ordinary shares is not known with certainty as is the case with dividend on preference shares or interest on debentures, which is known in advance. Moreover, the latter two are almost constant, whereas the dividend on ordinary shares is expected to grow.

The valuation of ordinary shares depends upon a host of factors, important among them being the system of dividends, expected price of the share when it is sold, current earnings and the flows resulting from future investment opportunities. This is why the techniques of the ordinary share valuation are either based on the earnings or on ...

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