The GC corporation pays no dividend currently and is not expected to for the next 4 years. Its latest EPS was $5, all of which was invested in the company. The firm's expected ROE for the next 4 years is 20% per year, during which time it is expected to continue to reinvest all of its earnings. Starting 5 years from now, the firms' ROE on new investments is expected to fall to 15% per year. GC's required rate of return is 15% per year.
a) What is GC's intrinsic value per share?
b) If its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year?