Response to the following problem:
Nine different share valuation procedures:
• Zero-growth DVM
• Constant-growth DVM
• Variable-growth DVM
• Dividends-and-earnings (D&E) approach
• Expected return (IRR) approach
• P/E approach
• Price-to-cash-flow ratio
• Price-to-sales ratio
• Price-to-book-value ratio
a. Which one (or more) of these procedures would be most appropriate when trying to put a value on:
i. A growth share that pays little or nothing in dividends?
ii. The ASX top 100?
iii. A relatively new company that has only a brief history of earnings?
iv. A large, mature, dividend-paying company?
v. A preference share that pays a fixed dividend?
vi. A company that has a large amount of depreciation and amortisation?
b. Of the nine procedures listed above, which three do you think are the best? Explain.
c. If you had to choose just one procedure to use in practice, which would it be? Explain.