Question

The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $5.20, all of which was reinvested in the company. The firm’s expected ROE for the next four years is 18% 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 17% per year. GG’s market capitalization rate is 17% per year.

**a.** What is your estimate of GG’s intrinsic
value per share? **(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?

Answer #1

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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 $6.40, 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...

The Generic Genetic
(GG) Corporation pays no cash dividends currently and is not
expected to for the next four years. Its latest EPS was $7.0, all
of which was reinvested in the company. The firm’s expected ROE for
the next four years is 27% 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
26% per year. GG’s market...

The Digital Electronic Quotation System (DEQS) Corporation pays
no cash dividends currently and is not expected to for the next
five years. Its latest EPS was $11.50, all of which was reinvested
in the company. The firm’s expected ROE for the next five years is
20% per year, and during this time it is expected to continue to
reinvest all of its earnings. Starting in year 6, the firm’s ROE on
new investments is expected to fall to 15%, and...

Problem 18-17
The Digital Electronic Quotation System (DEQS) Corporation pays
no cash dividends currently and is not expected to for the next
five years. Its latest EPS was $19.00, all of which was reinvested
in the company. The firm’s expected ROE for the next five years is
17% per year, and during this time it is expected to continue to
reinvest all of its earnings. Starting in year 6, the firm’s ROE on
new investments is expected to fall to...

Dividends discount model:
The MBS Corporation’s dividends per share are expected to grow
indefinitely by 5% per year.
DDa. If
this year-end dividend is $8 and the market capitalization rate is
10% per year, what must the current stock price be according to the
DDM (Dividends Discounting Model)?
DDb. If the
expected earnings per share are 12$, what is the implied value of
the ROE on future investment opportunities?
DDc. How
much is the market paying per share for growth opportunities (i.e.,
for...

The risk-free rate of return is 8%, the expected rate of return
on the market portfolio is 15%, and the stock of Xyong Corporation
has a beta of 1.2. Xyong pays out 40% of its earnings in dividends,
and the latest earnings announced were $10 per share. Dividends
were just paid and are expected to be paid annually. You expect
that Xyong will earn an ROE of 20% per year on all reinvested
earnings forever. If the market price of...

Flyers, Inc., reported an EPS of $4.6 this year (t0). Flyers is
expected to maintain a retained earnings ratio of 0.5 and ROE of
0.18 for the next four years. After the fourth year, ROE is
expected to decrease to 0.05. Applying the cost of equity of 0.11
and the multi-stage growth model, compute the intrinsic price of
Flyers.

Surf & Turf Hotels is a mature business, although it pays no
cash dividends. Next year’s earnings are forecasted at $70 million.
There are 10 million outstanding shares. The company has
traditionally paid out 50% of earnings by repurchases and
reinvested the remaining earnings. With reinvestment, the company
has generated steady growth averaging 5% per year. Assume the cost
of equity is 16%.
a. Calculate Surf & Turf ’s current stock
price, using the constant-growth DCF model. (Hint: Take
the...

Flyers, Inc., reported an EPS of $5.1 this year (t0). Flyers is
expected to maintain a retained earnings ratio of 0.3 and ROE of
0.18 for the next four years. After the fourth year, ROE is
expected to decrease to 0.06. Applying the cost of equity of 0.15
and the multi-stage growth model, compute the intrinsic price of
Flyers. *Round your answer to TWO decimal places.

Company Z-prime’s earnings and dividends per share are expected
to grow by 4% a year. Its growth will stop after year 4. In year 5
and afterward, it will pay out all earnings as dividends. Assume
next year’s dividend is $9, the market capitalization rate is 9%
and next year’s EPS is $14. What is Z-prime’s stock price? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.)

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