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 $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 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.)

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 at a rate of ___%

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 $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...

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
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five years. Its latest EPS was $11.50, all of which was reinvested
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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
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