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FINC 341 1st Questions

FINC 341 1st Questions - FINC 341 Chapter 1 Questions...

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FINC 341 Chapter 1 Questions: 2,4,5,8,9,10 2: (page 10) Company B should have the higher price because there is more confidence in Company A. It is thought to be easy to evaluate therefore making it less risky. The success or lack thereof of projects such as these determines the stock prices of these companies. EX: Apple and Wal-Mart 4: (page 12) A stock is in equilibrium when its actual market price is equal to its intrinsic value. Intrinsic Value is an estimate of the stocks “true” value as calculated by a competent analyst who has the best available risk and return data. Market Price is based on perceived but possibly incorrect information as seen by the marginal investor. Market prices can and do differ from intrinsic values but eventually, the two values tend to converge. Management’s goal should be to take actions designed to maximize the firm’s intrinsic value, not its current market price. 6: (page 12) It is better for a firm’s actual stock price to be lower than its intrinsic value. Intrinsic value is a long-run concept.
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