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The valuation of ordinary shares is more complicated than the valuation of bonds and preference shares. Explain the factors that complicate the valuation of ordinary shares.

      

The valuation of ordinary shares is more complicated than the valuation of bonds and
preference shares. Explain the factors that complicate the valuation of ordinary shares.

  

Answers


Martin
Valuation of ordinary shares is more complicated than valuation of bonds
and preference shares because of:
- Uncertainty of dividend unlike interest charges and preference dividends which
are certain
- The data for valuation of ordinary shares is historical which may not reflect
future expectations.
- A constant stream of dividends per share is assume
- The growth rate is assumed constant and is computed from past dividends.
- The cost of equity/required rate of return on equity is assumed to be constant
though it changes over time.
marto answered the question on February 12, 2019 at 10:04


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