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The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next two years. Its latest EPS was $5,
The Generic Genetic (GG) Corporation pays no cash dividends currently and is not expected to for the next two years. Its latest EPS was $5, all of which was reinvested in the company. The firm's expected ROE for the next two years is 20% per year, during which time it is expected to continue to reinvest all of its earnings. From year 3 to year 6, the firm's ROE on new investments is expected to fall to 15% per year and it is expected to reinvest 60% of its earnings. Starting in year 7, the firm's expected ROE is 10% and it is expected to reinvest 50% of its earnings indefinitely.. GGs market capitalization rate is 15% per year. a. What is your estimate of GGs intrinsic value per share?, 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
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