Assuming that both can be calculated with reasonable accuracy, does book value or intrinsic value give a more accurate assessment of acompany’s value? Why?
Assuming that both can be calculated with reasonable accuracy, does book value or intrinsic value give a more accurate assessment of acompany’s value? Why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Assuming that both can be calculated with reasonable accuracy, does book value or intrinsic value give a more accurate assessment of a
company’s value? Why?
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Answer
Intrinsic value is a more accrurate assessment as compared to book value assessment because,
Intrinsic value includes fair value or market value of assets and liabilities while book value approach considers book values only which are historical and are no longer useful in future decision making.
Intrinsic value captures the market sentiments of demand and supply forces.
Intrinsic value shows how much an asset should worth so that the investor can compare the market price with the intrinsic value so as to decide whether the asset is worth to buy or not.
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