**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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Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $2.00 coming 3 years from today. The dividend should grow rapidly at a rate of 55% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 9% per year. If the required return on the stock is 15%, what is the value of the stock today? (Assume the market is in equilibrium with the required return equal to the expected return.) Do not round intermediate calculations. Round your answer to the nearest cent. $
Halliford Corporation expects to have earnings this coming year of $2.879 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 48% of its earnings. It will retain 18% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 22.9% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.7%, what price would you estimate for Halliford stock? The stock price will be $. (Round to the nearest cent.)
Tolo Co. plans the following repurchases: $10.4 million in one year, nothing in two years, and $19.2 million in three years. After that, it will stop repurchasing and will issue dividends totaling $25.7 million in four years. The total paid in dividends is expected to increase by 2.9% per year thereafter. If Tolo has 2.3 million shares outstanding and an equity cost of capital of 10.7%, what is its price per share today?
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.75 coming 3 years from today. The dividend should grow rapidly - at a rate of 55% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 5% per year. If the required return on the stock is 14%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round your answer to the nearest cent.
Halliford Corporation expects to have earnings this coming year of $2.89 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 45% of its earnings. It will then retain 21% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 21.52% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.4%, what price would you estimate for Halliford stock? Note: Remember that growth rate is computed as: retention rate x rate of return. The price per share is $ (Round to the nearest cent.)
Halliford Corporation expects to have earnings this coming year of $2.82 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 54% of its earnings. It will then retain 20% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 26.02% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 9.9%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate rate of return. The price per share is $ (Round to the nearest cent.)
Halliford Corporation expects to have earnings this coming year of $3.36 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 51% of its earnings. It will then retain 21% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 22.26% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 11.9%, what price would you estimate for Halliford stock? Note: Remember that growth rate is computed as: retention rate x rate of return. The price per share is $. (Round to the nearest cent.)
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 10 years because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $13.50 per share 11 years from today and will increase the dividend by 5.25 percent per year thereafter. If the required return on this stock is 13.25 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price
Halliford Corporation expects to have earnings this coming year of $3.33 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two years, the firm will retain 55% of its earnings. It will then retain 17% of its earnings from that point onward. Each year, retained earnings will be invested in new projects with an expected return of 21.56% per year. Any earnings that are not retained will be paid out as dividends. Assume Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If Halliford's equity cost of capital is 10.8%, what price would you estimate for Halliford stock? Note: Remenber that growth rate is computed as: retention rate × rate of return. The price per share is $ (Round to the nearest cent.)
"Finance3000" is a young start-up company. It will not pay any dividends on its stock over the next nine years because it plans to use retained earnings on expanding its business. "Finance3000" will pay a $14 per share dividend 10 years from today. After that the company will increase the dividend by 6 percent per year, in perpetuity. The required return on this stock is 12.5 percent. Calculate the value of one share of "Finance3000"'s stock. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price
XYZ corporation is expecting free cash flow of $100 million next year, and it will grow by 3% per year indefinitely afterward. XYZ’s discount rate is 12%. XYZ has $300 million worth of long term bonds outstanding, and 10 million shares of stock outstanding. What is a fair value for a share of XYZ? Do not include the $ sign and answer to the nearest $0.01.

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