EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 18, Problem 15PS
a.
Summary Introduction
To calculate: The intrinsic value of GE by using three-stage growth model when the terminal growth is 7%.
Introduction:
Intrinsic value: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value. The intrinsic value concept can be applied while valuing the company’s stock, the currency of any of its products.
b.
Summary Introduction
To calculate: The intrinsic value when the GE’s actual Beta is 1.0.
Introduction:
Intrinsic value: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
c.
Summary Introduction
To calculate: The intrinsic value when the market premium is 7.5%.
Introduction:
Intrinsic value: When a company has to be valued without the reference of the market value, we make use of the concept of intrinsic value. Intrinsic value is supposed to be the value of the company derived after a detailed analysis, specifically without considering its market value.
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Students have asked these similar questions
Your global beta is 1.03. The risk-free rate is 2.4%. Assume GRP is 7%. What is your global cost of equity?
Calculate the intrinsic value of Rio Tinto in each of the following scenarios by using the three-stage growth model of Spreadsheet 18.1;
Treat each scenario independently.
a. The terminal growth rate will be 10.30%. (Round your answer to 2 decimal places.)
X Answer is complete but not entirely correct.
$ 171.33 X
Intrinsic value
b. Rio Tinto's actual beta is 1.05. (Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
Intrinsic value
$ 141.48
c. The market risk premium is 9.50%. (Round your answer to 2 decimal places.)
Assume the risk-free rate is 2.5% and the market risk premium is 8.0%. The beta of GE is 1.10.
The dividend forecast for the next four years is as follows:
2017: $1.04
2018: $1.22
2019: $1.41
2020: $1.60
Using the dividend payout ratio (53%) and Return on Equity (19.5%), what is closest to the intrinsic value of GE stock using the dividend discount model?
Question 9 options:
a)
$53.40
b)
$140.00
c)
$97.98
d)
$75.83
Chapter 18 Solutions
EBK INVESTMENTS
Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - Prob. 4PSCh. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Prob. 8PSCh. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 5CPCh. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CP
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