Final answer:
The basic steps in valuing a company or its shares include forecasting future values, determining the present discounted value, and assessing risk, but not specifically determining future dividends. The concept of present discounted value is pivotal, considering both expected profits and the appropriate discount rate to determine current worth of future benefits.
Step-by-step explanation:
The student's question pertains to the steps involved in valuing an entire company, an operating division of that company, or its ownership shares. The three basic steps included in the valuation process are forecasting future amounts of a value-relevant attribute, determining the discounted present value of the expected future amounts using an appropriate discount rate, and determining the risk or uncertainty associated with the forecasted future amounts. However, determining the dividends the company will pay in the future based on the company’s dividend policy and expected future earnings is not a basic step in the valuation process, but rather an element that might be considered within the context of forecasting future profits or when analyzing future benefits for the valuation of stocks specifically.
Valuations are based on the concept of the present discounted value (PDV), which represents what one is willing to pay in the present for a stream of benefits to be received in the future. This concept takes into account expected profits (which are a best guess), the chosen discount rate, and potential capital gains and dividends from the sale of stock. It is also applicable in the valuation of bonds, which can sell for more or less than face value depending on interest rate changes that occur after the bond is issued. Ultimately, the present discounted value adjusts our intuition about the worth of future payments in today's terms.