Intel Corporation is a leading manufacturer of semiconductor chips. The firm was incorporated in 1968 in Santa Clara, California, and represents one of the greatest success stories of the computer age. Although Intel continues to grow, the industry in which it operates has matured, so there is some question whether the firm should be evaluated as a high-growth company or stable-growth company from now on. For example, in December 2007, the firms shares were trading for $20.88, and has a priceearnings ratio of 17.622. Compared to Google Inc.s priceearnings ratio of 53.71 on the same date, it would appear that the decision has already been made by the market.

Intels expected earnings for 2007 were $1.13 per share, and its payout ratio was 48%. Furthermore, selected financial data for the sector, industry, and seven of the largest firms (including Intel) are found below

Industry Comparables for Intel Corporation

a. Is Intels current stock price of $20.88 reasonable in light of its sector, industry, and comparison firms?

b. Intel has a beta coefficient equal to 1.66. If we assume a risk-free rate of 5.02% and a market risk premium of 5%, what is your estimate of the required rate of return for Intels stock using CAPM? What rate of growth in earnings is consistent with Intels policy of paying out 48% of earnings in dividends and the firms historical return on equity? Using your estimated growth rate, what is the value of Intels shares using the Gordon (single-stage) growth model? Analyze the reasonableness of your estimated value per share using the Gordon model.

c. Using your analysis in Problem (b), what growth rate is consistent with Intels current share price of $20.88?

d. Analysts expect Intels earnings to grow at a rate of 12% per year over the next five years. What rate of growth from year 6 forward (forever) is needed to warrant Intels current stock price (use your CAPM estimate of the required rate of return on equity)? (Hint: Use a two-stage growth model where Intels earnings grow for five years at 12% and from year 6 forward at a constant rate.)

Please use below template for solution

PROBLEM 8-9
Given
Beta	1.66
Dividend payout ratio	48%
EPS for 2007	$ 1.13
Stock Price (12/07/06)	$ 20.88
Anticipated growth rate in EPS (5 years)	12%
Description	Market Cap	P/E	Return on Equity %	Dividend Yield %	Long-term Debt to Equity	Price to Book Value	Net Profit Margin	Price To Free Cash Flow
Sector: Technology	5344.81B	27.716	14.77%	1.90%	0.691	5.588	10.39%	55.435
Industry: Semiconductor - Broad Line	252.89B	19.9	16.20%	1.30%	0.096	3.42	15.50%	193.3
Intel Corp.	120.51B	17.622	19.63%	1.90%	0.064	3.437	18.72%	121.039
Texas Instruments Inc.	44.62B	11.08	22.94%	0.50%	0.004	3.71	18.67%	-5577.55
STMicroelectronics NV	16.35B	24.959	7.81%	0.70%	0.209	1.764	8.24%	-11.219
Advanced Micro Devices Inc.	11.79B	21.152	12.61%	0.00%	0.138	2.088	10.13%	-58.916
Analog Devices Inc.	11.48B	22.667	15.42%	1.90%	NA	3.342	21.48%	311.392
Maxim Integrated Products Inc.	10.28B	23.025	16.93%	1.90%	NA	3.681	21.39%	NA
National Semiconductor Corp.	8.04B	18.049	25.67%	0.60%	0.012	4.481	22.18%	154.483
Solution
a.		Intel Comparison to Industry
P/E
ROE
Dividend Yield
LTD to Equity
Price to Book
Net Profit Margin
Price to Cash Flow
b.
Estimated cost of equity
Estimated growth rate
DCF Estimate of Share Price
c.
Imputed growth rate
d.
Estimated future dividends	Year	Earnings	Dividends
	2007	$ 1.13
	2008
	2009
	2010
	2011
Future growth rate
Value of Intel Shares (2-stage)
2007-2011
2011 and beyond
Estimated equity value