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.