1) n=999, I/Y = 5% (19%(required rate of return)14%(dividend growth rate), PMT= 2.28(1+14%), PV=? 51.98

the intrinsic value is $51.98.

My question is why is the intrinsic value higher than the 2008 price of 38.9 when the required rate of return is higher than the growth rate? Asking from a logically point of view, not mathematically. AND why 5% (19%-14%)?

2) the answer to this question is $39.98. But I have no idea what to input into my financial calculator (using ba ii plus professional)

Thanks.

EXAMPLE 7 Applying the Gordon Growth Model Total S.A., one of France's largest corporations and the world's fifth largest publicly traded integrated petroleum company, operates in more than 130 countries. Total engages in all aspects of the petroleum industry, produces base chemicals and specialty chemicals for the industrial and consumer markets, and has interests in the coal mining and power generation sectors. To meet growin energy needs on a long-term basis, Total considers sustainability when making decisions. Selected financial information for Total appears in Exhibit 3. Exhibit 3 Selected Financial Information for Total S.A 2006 2005 Year EPS DPS Payout ratio ROE Share price 2008 6.20 2.28 31% 2004 3.76 ez 36% 33% 2007 5.37 5.44 5.08 2.07 1.87 1.62 1.35 39% 31% 34% 33% 32% 35% (Paris Bourse) 38.910 56.830 54.650 52.367 39.657 Note: DPS stands for "dividends per share." Source: Company website: www.total.com. The analyst estimates the growth rate to be approximately 14 percent based on the dividend growth rate over the period 2004 to 2008 [1.35(1 + g) 2.28, sog-14%). To verify that the estimated growth rate of 14 percent is feasiblen the future, the analyst also uses the average of Total's retention rate and ROE for the previous five years (g ~ 0.64 33%-21%) to estimate the sustainable growth rate Using a number of approaches, including adding a risk premium to a long term French government bond and using the CAPM, the analyst estimates required return of 19 percent. The most recent dividend of 2.28 is used for Do 1 2 Use the Gordon growth model to estimate Total's intrinsic value How much does the dividend growth assumption add to the intrinsio value estimate