Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 18, Problem 18PS
A
Summary Introduction
To calculate: The estimation of GG’s intrinsic value per share as per the given information.
Introduction:
In a company, intrinsic value is the calculated value. The estimated value is used in fundamental analysis and its cash flow. The amount of profit that exists in a contract.
B
Summary Introduction
To calculate: The effect on the price over the next year is to be determined when current market price is equal to the intrinsic value.
Introduction:
In a company, intrinsic value is the calculated value. The estimated value is used in fundamental analysis and its cash flow. The amount of profit that exists in a contract.
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The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest
EPS was $6.20, all of which was reinvested in the company. The firm's expected ROE for the next four years is 19% 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 18% per year. GG's market capitalization rate is 18% per year.
Required:
a. What is your estimate of GG's intrinsic value per share?
Note: Round your answer to 2 decimal places.
b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?
Complete this question by entering your answers in the tabs below.
Required A Required B
What is your estimate of GG's intrinsic value per share?
Note: Round your answer to 2 decimal places.
GG's intrinsic value
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS
was $5.50, all of which was reinvested in the company. The firm's expected 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.
a. What is your estimate of GG's intrinsic value per share? (Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
GG's intrinsic value
$
Price should
73.32 x
b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?
increase
X Answer is complete but not entirely correct.
at a rate of
23 X % over the next year.
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.80, all of which was reinvested in the company. The firm's expected ROE for the next four years is 24% 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 23% per year. GG's market capitalization rate is 23% per year.a. What is your estimate of GG's intrinsic value per share?
GG's intrinsic value =
b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?
Price should increase or decrease at a rate of _________% over the next year.
Chapter 18 Solutions
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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