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Valuation: Measuring and Managing the Value of Companies, Sixth Edition
Chapter 30 Investor Communications
Solutions
1. The purpose of investor communications is to align the share price and intrinsic value of the firm.
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 and demoralization to
3. Companies typically do not have a significant gap between their market value and intrinsic value.
When gaps exist, they are usually caused by an incorrect valuation of an entire industry or can be
4. The three objectives are (1) doing a careful analysis to determine if a discrepancy exists between
market value and intrinsic value; (2) developing support from a group of sophisticated intrinsic
investors who thoroughly understand the company’s strategies, strengths, and weaknesses; and
5. Understanding the investor base helps managers predict those investors’ reactions to various
announcements. It also allows the managers to know how to better communicate information.
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
8. It is beneficial to supply information so the firm can be fairly valued. Both overvaluation and
9. Managers think 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. Studies have found no
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