Question

What is the intrinsic value of a share? What are the differences and similarities between capital budgeting project analysis and firm valuation?

Answer 1

Intrinsic value of the share is the value of the Assets and the liabilities of the company and it is the value of the overall firm at the present.

Intrinsic value is the value which is found out by cash flow generation ability and asset and liabilities adjustment of the firm.

Differences between capital budgeting analysis and firm valuation is that firm valuation will always be trying to find the value of the firm through comparative analysis whereas there is no comparative analysis in capital budgeting.

capital budgeting will generally be trying to find the value of the project for valuation, where as firm valuation is used for a wider perspective in order to find out the value of the complete firm

capital budgeting will be including methods like net present value and internal rate of return where as firm validation will be including methods life discounted cash flow valuation and Dividend growth model

Similarities between both the method will be that both are aiming for increasing of the value of the company and they are also discounting the cash flows which are arising out in the future so they will be trying to find out the the value of whether the firm or the project.