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Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 24 Solutions
Investor Communications
1. The purpose of investor communications is to align the share price and intrinsic value of
the firm. However, managers usually see investor communications as a means to try to
2. Managers must avoid too large a gap between a company’s intrinsic value and its market
value. If the shares are overpriced, they are likely to fall at some point and bring losses
3. According to the study cited by the text, in the large sample used, about 80 percent of
companies had market values fairly close to a fair assessment of the intrinsic value. When
4. The three areas on which to focus to improve investor communications are (1) doing a
careful analysis to determine if a discrepancy exists between market value and intrinsic
5. Understanding the investor base helps managers predict those investors’ reactions to
6. Growth stocks are those where the earnings are expected to grow and to increase the
stock price with the growth. Value stocks do not necessarily have expectations of
earnings growth. They do have low prices relative to the expectations, which may be that
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8. It is beneficial to supply information so the firm can be fairly valued. Both overvaluation
and undervaluation can be harmful. Although the firm justifiably keeps some information
9. Managers think that issuing guidance on their likely EPS in the next quarter is necessary
because it leads to higher valuations, lower share price volatility, and improved liquidity.
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