Target Price

Target Price§

Definition§

Finance: In the context of finance, particularly during a takeover, a target price refers to the price at which an acquirer aims to buy a company. This price forms a critical part of the negotiations between the acquiring and target companies.

Manufacturing: For manufacturing, a target price is the maximum wholesale or retail price set for a product being developed. It is determined based on cost, market conditions, and competitive analysis to ensure profitability and market competitiveness.

Options: In options trading, the target price is the price level of the underlying security at which a specific option becomes profitable. This is crucial for traders to determine when it makes financial sense to exercise the option.

Examples§

1. Finance:

   • Company A is planning to acquire Company B. After thorough valuation, Company A sets their target price for Company B at $50 per share. This price will guide their acquisition negotiations and offers.

2. Manufacturing:

   • A new smartphone is being developed by TechCorp. The manufacturing team determines that the target retail price should not exceed $699 to remain competitive while achieving a reasonable profit margin.

3. Options:

   • An investor buys a call option for XYZ stock with a strike price of $100. The target price for XYZ stock is set at $120, meaning the investor expects the stock to reach at least this price for the option to be considerably profitable.

Frequently Asked Questions§

Q1: How is the target price determined in a company takeover?

• The target price is determined through a combination of financial metrics, including valuation models, comparative analysis with similar companies, and negotiation considerations between the acquiring and target companies.

Q2: Can the target price in manufacturing change after product development begins?

• Yes, the target price can be adjusted based on market conditions, production costs, competitive pressure, and potential regulatory changes.

Q3: How accurate are analysts’ target prices for stocks?

• Analysts’ target prices are estimates based on various financial models and assumptions. They offer guidance but are not infallible; actual market conditions can lead to significant deviations from projected prices.

Related Terms§

1. Takeover:

   • The act of gaining control over a company by buying a majority of its shares.

2. Strike Price:

   • The set price at which an option can be exercised.

3. Wholesale Price:

   • The price charged for large quantities of goods, typically to retailers.

4. Retail Price:

   • The price at which a product is sold to the end consumer.

Online References§

1. Investopedia - Target Price
2. Wikipedia - Takeover
3. Investopedia - Options Trading

Suggested Books for Further Studies§

1. “Taking Care of Business: A Practical Guide to Business Takeovers” by John J. Wolf
2. “Manufacturing Process Selection Handbook: From Design to Manufacture” by K. G. Swift and J. D. Booker
3. “Options as a Strategic Investment” by Lawrence G. McMillan

Fundamentals of Target Price: Finance Basics Quiz§

Thank you for exploring the concept of target prices across various scenarios. Continue to enhance your finance and business knowledge!