Now calculate the intrinsic value of three of the firms you selected in the previous question. Make

Question:

Now calculate the intrinsic value of three of the firms you selected in the previous question.

Make reasonable judgments about the market risk premium and the risk-free rate.

a. What is the required return on each firm based on the CAPM? You can find the beta of each firm from its Statistics page.

b. Try using a two-stage growth model, making reasonable assumptions about how future growth rates will differ from current growth rates. Compare the intrinsic values derived from the two-stage model to the intrinsic values you find assuming a constant-growth rate.

Which estimate seems more reasonable for each firm? P-69

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