5. The risk-free rate of return is 7.5%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporation has a beta coefficient of 1.1. Xyrong pays out 50% of its earnings in dividends, and the latest earnings announced were $10.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all reinvested earnings forever. a. What is the intrinsic value of a share of Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Intrinsic value b. If the market price of a share is currently $75, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on Xyrong stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected of one-year holding period return

6. Calculate the intrinsic value of Rio Tinto in each of the following scenarios by using the three-stage growth model of Spreadsheet 18.1. Treat each scenario independently. a. The terminal growth rate will be 10.80%. (Round your answer to 2 decimal places.) Intrinsic value

b. Rio Tintos actual beta is 1.01. (Round your answer to 2 decimal places.) Intrinsic value

c. The market risk premium is 10.00%. (Round your answer to 2 decimal places.)

Intrinsic value

7. The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next four years. Its latest EPS was $6.10, all of which was reinvested in the company. The firms expected ROE for the next four years is 18% per year, during which time it is expected to continue to reinvest all of its earnings. Starting in year 5, the firms ROE on new investments is expected to fall to 17% per year. GGs market capitalization rate is 17% per year. a. What is your estimate of GGs intrinsic value per share? (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?

period should

at a rate of

%over the next year