**GG Corporation: Intrinsic Value and Future Price Expectations**The Generic Genetic (GG) Corporation currently pays no cash dividends and is not expected to for the next four years. The company's latest Earnings Per Share (EPS) was $5.50, all of which was reinvested in the company. The firm's expected Return on Equity (ROE) for the next four years is 21% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm’s ROE on new investments is expected to fall to 20% per year. GG’s market capitalization rate is 20% per year.### Estimating GG's Intrinsic Value Per Share**Question:**What is your estimate of GG’s intrinsic value per share? (Round your answer to 2 decimal places.)**Given Answer:**- GG’s intrinsic value: $73.32**Feedback:**The answer is complete but not entirely correct.### Expected Price Change Over the Next Year**Question:**Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?**Given Answer:**- **Price should increase at a rate of 23% over the next year.****Feedback:**The answer is complete but not entirely correct.

In year 4 : Growth rate (g) = ROE*reinvestment rateGrowth rate (g) = 21% * 100% = 21%EPS =…

Answered: The Generic Genetic (GG) Corporation…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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