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FIN 302 Ch. 1 hw

FIN 302 Ch. 1 hw - FIN 302 Dr Kang February 5 2007 Chapter...

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FIN 302 Dr. Kang February 5, 2007 Chapter 1: Questions 5. The intrinsic value is an estimate of the stock’s “true” value based on accurate risk and return data. The intrinsic value can be estimated but not measured precisely. The current stock price is the price in which the stock is being traded at existing time. The stock’s “true long-run value” is more closely related to its intrinsic value because intrinsic value looks beyond just numbers and data and takes into account other factors such as risk. 9. The CEO’s compensation should depend on how well the firm performs because this will give managers incentive to boost the company’s performance. If the CEO’s are paid based on a fixed dollar amount they may become apathetic towards the company’s success because they are getting paid no matter how well the company does. Performance should be calculated using a number of things. Not only should it be measured by how the company is doing, the firm should take in account the intrinsic value. It should look at the amount of risk that the CEO’s took
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