The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next 4 years. Its latest EPS was $6.7, all of which was reinvested in the company. The firm’s expected ROE for the next 4 years is 24% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firm will payout all of its earnings as dividend and the firm’s ROE on new investments is expected to fall to 19% per year. GG’s market capitalization rate is 23% per year.
a. What is your estimate of GG’s intrinsic value per share? (Omit the "$" sign in your response. Round your answer to 2 decimal places.)
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? (Omit the "%" sign in your response.)
Price should (Click to select) decreaseincrease at a rate of % over the next year.