Assignment:
Present Value Analysis
1) What is your opinion to the questions below?
Valuation is a key area in finance. Time value of money techniques are used in valuation. That is, present value and future value are used in valuation. Present value involves discounting, whereas future value involves compounding. Investors want to know if they should buy, sell, or hold a company. Investors compare the intrinsic value of the company to the market price of the company. If the intrinsic value of the company is more than the market value of the company, the investor will likely buy the company because it's considered undervalued. If the intrinsic value of the company is less than the market value of the company, the investor will likely sell the company if the investor currently owns the company since the company is considered overvalued. If the intrinsic value of the company equals the market value of the company, the company is considered fully valued. A fully valued company wouldn't be purchased by an investor; however, it may be sold by an investor who purchased the company at a lower price.
References:
Fernandez, P. (2007, February 28). Company valuation methods. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=274973
Penman, S.H., and Sougiannis, T. (1997, March 31). A comparison of dividend, cash flow, and earnings approaches to equity valuation. Retrieved from
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=15043
Required to do:
Below are some questions for discussion.
Question 1. What are three methods of determining the value of a company? Compare and contrast these different methods.
Question 2. What are the three forms of the Efficient Markets Hypothesis and what are three anomalies to the Efficient Markets Hypothesis?
Question 3. How do compounding periods impact present value? Illustrate this with three numerical examples of different compounding periods.
You do not need to answer all three questions. You must also respond to at least two peers' posts over two separate days. Please try to add information not previously discussed by others. Please provide factual information (not merely opinions) backed up by details or examples. Your comments should be in your own words and include references in APA format.