FINANCIAL MANAGEMENT

Debenture Valuation A bond is an instrument of debt issued by a business house or a government unit. The bonds may be issued at par, premium or discount. The par value is the amount stated on the face of the bond. It states the amount the firm borrows and promises to repay at the time of maturity. The bonds carry a fixed rate of interest payable at fixed intervals of time. The interest is calculated by multiplying the value of bonds with the rate of interest. Bond valuation is, generally, called debt valuation because the features that distinguish bonds from other debts are primarily non-financial in nature. Since bonds have a promised payment stream, they are less risky as compared to the shares. But it does not mean that they are totally risk free. Therefore, the required rate of return on a firm’s bond will exceed the risk free interest rate but will be less than the required rate of return on shares. The differences in required rates of return among bonds of different

Share Valuation While valuing the shares an accountant is to depend on the following assumptions: (i) Sufficient number of buyers and sellers of the share are available in the market; (ii) The seller does not sell his shares due to his urgent need; and (iii) The purchaser of the shares does not like to pay a higher price in comparison with the reasonable price or market price of the shares. Valuation of shares should be meaningful provided the above assumptions are satisfied. Practically, valuation of unquoted shares is very difficult although the same task can be done on the basis of past decisions of different leading cases and related surroundings. It should be remembered in this respect that the price of shares of a company which is quoted in the Stock Exchange may not be at par in comparison with the real financial position of the company. Because, there are certain external factors (i.e., the demand and supply of shares, rate of bank interest, tax-policy of the gov