Question

Is it better for a firms actual stock price in the market to be under over equal to its interest sick value? Would your answer be the same for Stan points of stockholders and general and a CEO who is about to exercise $1 million in options and then retire? Explain

Answer 1

Firms actual stock price in the market refers to Market price of the stock. When the market value of a stock and it's intrinsic value are equal, stock is in equillibrium. The stock price doesn't change as there's no buying/selling pressure on it. Intrinsic value can be calculated by investors using fundamental analysis to look at both the qualitative (business model, governance and target market factors) and quantitative (ratios and financial statement analysis) aspects of a business. It's management's prerogative to maximize a stock's intrinsic value.

If stockholders expect firm's market value to be under the intrinsic value with the understanding that management meets their expectation, then current price would not be maximised.

However, from CEO perspective, he would prefer that the market price to be high as by exercising $1 million in option he would get the current market price