When the Intrinsic Value of an Asset Exceeds the Market

question 134

Multiple Choice

When the intrinsic value of an asset exceeds the market value

• A)the asset is undervalued to the investor.
• B)the asset is overvalued to the investor.
• C)market value and intrinsic value are always the same; therefore,this could not happen.
• D)liquidation value must be higher than book value.

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Definitions:

Decision Making

The cognitive process of selecting a course of action from among multiple alternatives, typically aimed at achieving a specific goal.

Equivalent Annual Cost

A financial analysis tool used to compare the cost effectiveness of two or more projects with differing lifespans, by calculating the annual cost of each.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Stand-Alone Principle

A method of evaluating investment projects as if they were the only project the company is undertaking, assessing their viability on their individual merits.