合肥工业大学财务管理原理双语课件Chapter4 The valuation of long-term securities.ppt

chapter 4 Chapter 4: The valuation of long-term securities Study objectives Distinctions among valuation concepts Bond valuation Preferred stock valuation Common stock valuation Rates of Return What does it mean? What is a cynic? A man who knows the price of everything and the value of nothing.---Oscar Wilde Why shall we know the valuation of long-term securities? Make investment decisions Determine the value of the firm Distinctions among valuation concepts Liquidation value versus going-concern value Liquidation value is the amount of money that could be realized if an asset or a group of assets (e.g., a firm) is sold separately from its operating organization. Going-concern value is the amount a firm could be sold for as a continuing operating business The computation of liquidation value and going-concern value is very different As in accounting, the security valuation models that we will discuss in this chapter will generally assume that we are dealing with going-concern Book value versus market value The book value of an asset is the accounting value of the asset---the asset’s cost minus its accumulated depreciation. The book value of a firm is equal the dollar difference between the firm’s total assets and its liabilities and preferred stock as listed on its balance sheet Because book value is based on historic values and estimations, it may not be accurate after a long period of time Book value versus market value In general, the market value of an asset is simply the market price at which the asset (or a similar asset) trades in an open market place. For a firm, market value often viewed as being the higher of the firm’s liquidation or going concern value Market value often outrival book value as to decision relevance, because market value takes risk, future opportunity, current cash flow in account. Market value versus intrinsic value For an actively traded security, the market value would be the last reported price at which the security was traded. For