CFFM8 PPT ch01

841 Words4 Pages
Eugene F. Brigham & Joel F. Houston

Fundamentals of Financial
Management Concise 8E

2-1
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

INTRO

ORGANIZATION

CREATING VALUE

STK-MGR
CONFLICTS

STK-DBT
CONFLICTS

BAL INTERESTS

Chapter 1

An Overview of Financial
Management
Forms of Business Organization
Creating Value for Investors
Stockholder-Manager Conflicts
Stockholder-Debtholder Conflicts
Balancing Shareholder Interests and Society Interests
1-2
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

INTRO

ORGANIZATION

CREATING
…show more content…
All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

INTRO

ORGANIZATION

CREATING VALUE

STK-MGR
CONFLICTS

STK-DBT
CONFLICTS

BAL INTERESTS

Stock Prices and Intrinsic Value



In equilibrium, a stock’s price should equal its
“true” or intrinsic value.




Intrinsic value is a long-run concept.



Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run.

To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate from its intrinsic value.

1-7
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.

INTRO

ORGANIZATION

CREATING VALUE

STK-MGR
CONFLICTS

STK-DBT
CONFLICTS

BAL INTERESTS

Determinants of Intrinsic Values and Stock Prices
Managerial Actions, the Economic Environment,
Taxes, and the Political Climate

“True” Investor
Cash Flows

“True” Risk

“Perceived” Investor
Cash Flows

Stock’s
Intrinsic Value

“Perceived”
Risk

Stock’s
Market Price

Market Equilibrium:

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