Question

Explain why the intrinsic value of a firm may be different from its market value?

Explain why the intrinsic value of a firm may be different from its market value?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The market value of the firm is just a mathematical calculation.

The market value = Current market price * Number of shares outstanding

Let's say the current market price of a stock is $100 and the number of shares outstanding is 2,000,000

Then, the market value of this firm = 100 * 2,000,000 = $200,000,000 or $200 million

The intrinsic value of the firm is equal to the present value of the future cash flow to equity. There are a lot of assumptions in estimating the future cash flows and the discount rate used in evaluating the intrinsic value of the firm. It varies from person to person, with their own assumptions of the firm's cash flow, risk, and growth.

The intrinsic value will most likely be different from the market value of the firm for this reason.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
We discussed three values of the firm: market value, accounting value, and intrinsic value. Explain how...
We discussed three values of the firm: market value, accounting value, and intrinsic value. Explain how intrinsic value is associated with free cash flow. (Write your answer within 100 words.)
Should managers focus directly on the stock’s actual market price or its intrinsic value, or are...
Should managers focus directly on the stock’s actual market price or its intrinsic value, or are both important? Explain.
Why do market based valuation approaches typically yield different valuations than intrinsic valuation approaches
Why do market based valuation approaches typically yield different valuations than intrinsic valuation approaches
how are the practical limits of science different from its intrinsic limits? give one example of...
how are the practical limits of science different from its intrinsic limits? give one example of each kind of scientific limit, and explain your choice.
Intrinsic Value and Consolidated Valuation Augmented Dividend: Discuss why it may not be realistic to assume...
Intrinsic Value and Consolidated Valuation Augmented Dividend: Discuss why it may not be realistic to assume the augmented dividend will be paid every year and grow at the constant rate forever.  
In a highly competitive financial market, securities are often traded below its intrinsic value in order...
In a highly competitive financial market, securities are often traded below its intrinsic value in order to encourage trading and attract liquidity. Is this statement true or false? Explain Tangency portfolio Mean-Variance dominates other portfolios on the efficient section of the investment opportunity set because it has the highest Sharpe ratio. Is this statement true or false? Explain
1) Explain three ways that a firm that is considering entering an overseas market can use...
1) Explain three ways that a firm that is considering entering an overseas market can use market orientation to its advantage. 2)   Explain two reasons why culture may play a role in a company repositioning its brand when entering a foreign market 3) Explain how and why the two different thinking styles (analytic vs. holistic) can be applied differently to explain country-of-origin effects. 4) Explain three challenges that managers are likely to encounter when implementing value-based pricing and potential ways...
what is the major goal of a company? Can you tie it to intrinsic value? Why...
what is the major goal of a company? Can you tie it to intrinsic value? Why do managers tend to maximize the market price but not the intrinsic value?
Explain Two reasons why a client may request an accountant from an accounting firm to compile...
Explain Two reasons why a client may request an accountant from an accounting firm to compile their financial statements?
What is the intrinsic value of stock? What is the market capitalization rate? How does intrinsic...
What is the intrinsic value of stock? What is the market capitalization rate? How does intrinsic value influence an investor’s expected rate of return?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT