Essentials of Financial Management, 5th Edition by Pearson

CHAPTER 4

Value of Shares and Debentures

LEARNING OBJECTIVES

• Explain the characteristics of ordinary shares, preference shares and debentures
• Show the use of present value concepts in the valuation of shares and bonds
• Calculate share price under constant growth, two-stage growth and no dividend situation
• Calculate yield-to-maturity and yield-to-call
• Discuss the valuation of preference shares
• Focus on the uses and misuses of price-earnings (P/E) ratio

INTRODUCTION

Assets can be real or financial. Securities, like shares and bonds or debentures, are called financial assets, while physical assets, like plant and machinery, are called real assets. The concepts of return and risk, as the determinants of value, are as fundamental and valid ...