Bundle: Fundamentals of Financial Management, 14th + LMS Integrated for MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781305776494
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 1, Problem 4Q
Summary Introduction
To identify: Whether the actual stock price in the market can be under, over, or above its intrinsic value from the standpoint of the stockholders and CEO, who are about to exercise a million dollars in options and retire.
Introduction:
Intrinsic Value: An estimated value of the stock which can be determined by considering the exact risk and return. The intrinsic value can be estimated but cannot be measured precisely. The intrinsic value can be calculated by professional analyst on the basis of data provided by the company.
Market price: The market price is the current value of the stock in which it is traded in the market. It is available in the newspaper and websites.
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Is it better for a firm’s actual stock price in the market to be under, over, or equal to its intrinsicvalue? Would your answer be the same from the standpoints of stockholders in generaland a CEO who is about to exercise a million dollars in options and then retire? Explain.
1. How do you think today's low interest rate environment is impacting the time value of money? How might this change the value of an asset or liability?
2. What is the relationship between the concepts of net present value and shareholder wealth maximization?
3. Offer some reasons that the intrinsic value that you might calculate with the methodologies learned might yield a price different than what the stock trades at in the stock market. You can reference any method of valuation models in offering thoughts on why there might be differences between intrinsic and market values.
In a few sentences, answer the following question as completely as you can.
Imagine you are the treasurer of a small manufacturing firm. Your firm is planning to go public (i.e., sell stock to investors for the first time). One unresolved question concerns the market’s required return on the stock. Given what you have learned, how do you think the required return will affect the market value of your firm’s stock? How would you go about estimating this rate?
Chapter 1 Solutions
Bundle: Fundamentals of Financial Management, 14th + LMS Integrated for MindTap Finance, 1 term (6 months) Printed Access Card
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Similar questions
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