ABC Company Stock Currently Has a Market Value Equivalent to Its

question 95

Multiple Choice

ABC Company stock currently has a market value equivalent to its intrinsic value. Marco perceives that ABC Company is increasing its level of risk and therefore Marco increases his required rate of return on ABC stock. This change in the required rate of return

• A) will reduce the intrinsic value of ABC stock to Marco.
• B) will increase the intrinsic value of ABC stock to Marco.
• C) will change the intrinsic value but the direction of the change cannot be determined.
• D) is a signal to Marco that he should buy more ABC Company stock.

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the true financial gain of a business.

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different customers, not based on differences in costs.

Marginal Cost

The additional expense incurred from producing another unit of a product.

Marginal Revenue

The additional revenue that a company generates from selling one more unit of a good or service.