Question

The intrinsic value of a company’s stock, also known as its fundamental value, refers to the stock’s "true" value based on accurate risk and return data. The value perceived by stock market investors determines the market price of a stock. A stock trading at a price below its intrinsic value is considered to be undervalued. A stock trading at a price above its intrinsic value is considered to be overvalued.

The goal of the managers of a publicly owned company should be to maximize the firm's_______

An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $37.32 per share, but Mandalays Inc.'s stock is trading at $45.59 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently:

a. in equilibrium

b. undervalued

c. overvalued

Answer 1

The goal of the managers of a publicly owned company should be to maximize the firm's INTRINSIC VALUE.

The board of directors' and upper management's main goal is to maximize the corporation's value in order to maximize stockholders' wealth.

An analyst with a leading investment bank tracks the stock of Mandalays Inc. According to her estimations, the value of Mandalays Inc.'s stock should be $37.32 per share, but Mandalays Inc.'s stock is trading at $45.59 per share on the New York Stock Exchange (NYSE). Considering the analyst's expectations, the stock is currently:

• c. overvalued

If the analyst considers that the stock's intrinsic price is $37.32 and the market price is $45.59, this means that currently the stock is overvalued.