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Intel Corporation questions

Intel Corp is a leading manufacturer of semiconductor chips. 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.

See spreadsheet to answer the following

a) Is Intel's current stock price of $20.88 reasonable in light of its sector, industry and comparison firms?

b) Intel has a beta coefficient of 1.66, a risk-free rate of 5.02% and a market risk premium of 5%, what is your estimate of the required rate of return using CAPM. What rate of growth in earnings is consisten with Intel's policy of paying out 40% of earnings in dividends and the firm's historical return on equity: Using your estimated growth rate, wht is the value of Intel's 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 part b above, what growth rate is consistent with Intel's current share price of $20.88?

d) Analysts expect Intel's 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 Intel's current stock price (use our CAPM estimate of the required rate of return on equity)? (Hint: Use a two-stage growth model where Intel's earnings grow for five years at 12% and from Year 6 forward at a constant rate.)


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