Question: Valuation of Microsoft Corporation (Medi um) In 2010, some fundamental investors believed that Microsoft, after being overpriced in the stock market for many years, was now a firm to buy. Microsoft shares traded at $24.30 in September 2010, down from a peak of $60 (split-adjusted) in January 2000. Analysts; consensus earnings-per-share forecasts for Microsoft 2011 and 2012 fiscal years (ending in June) were $2.60 and $2.77, respectively. A dividend of$0.40 per share was indicated for fiscal year 2011.
a. Calculate Microsoft normal forward PIE and the forward PIE at which it traded in September 2010. Use a required return of 9 percent.
b. Calculate the intrinsic PIE implied by the analysts; forecasts with the assumption that there will be no abnormal earnings growth after 2012.
c. If you forecast that there will be significant abnormal earnings growth after 2012, do you think this stock is appropriately priced a t $24.30?
d. Calculate Microsofts traded PEG ratio based on analysts; forecasts of earnings for fiscal years 2011 and 2012.