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Intel Corporation questions

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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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Intel Corporation Analysis: Where Are the Numbers?

Question 4.19 - How leveraged is your company
Accounts Current Yr. Previous Yr. N. Previous Yr. Trend Descript.
A Net cash from operating activity $18,884 20,963 16,692 Down only this
B Interest Expense
C Cash interest Coverage Ratio 166.26 434.68 0 Down only this

Question 4.20 - How well does your company invest in its future? (In Millions)
Accounts Current Yr. Previous Yr. N. Previous Yr. Trend Descript.
A Retained Earnings per share $2.20 2.46 2.06 Down only this
B Stockholders' Equity per share $10.25 8.73 8.90 Up only this year.
C Retained Earnings Ratio .21 .28 .23 Down only this year.

D Is your company investing adequately in its future and why? Is Intel investing adequately in its future and why? Yes, Intel is adequately investing in the future. Intel has increased its spending in Research and development from $6.576 billion in 2010 to $10.148 billion in 2012. The investment is needed for Intel to continue being the dominant player within its market.

Question 4.21 - Capital and Treasury Stock (In Millions)
Accounts Current Yr. Previous Yr. N. Previous Yr. Trend Descript.
A Common stock 4,996 5,256 5,555 Down consistently
B Preferred stock 0 0 0
C Treasury stock 0 0 0

Question 4.21 - Capital and Treasury Stock
Accounts Current Yr. Previous Yr. N. Previous Yr. Trend Descript.
A Description of Business
B Consolidation
C Foreign Currency $15,828 12,853 10,761 Positive
D Cash and Cash Equivalents $18,162 14,837 0 Up this year, positive for this industry
E Inventories $4,734 4,096 0 Up this year, negative trend

Question 4.22 - Other significant information about your company not found on the financial statement?
Accounts Note # Disclosure Importance
A Discontinued Operations NA NA NA
B Related Parties NA NA NA
C Contingencies 27 They contend that we improperly condition price and other discounts on our microprocessors on exclusive or near exclusive dealing by some of our customers; and they allege that our software compiler business unfairly prefers Intel microprocessors over competing microprocessors and that, through the use of our compilers and other means, we have caused the dissemination of inaccurate and misleading benchmark results concerning our miroprocessors. We are a party to various legal proceedings. Unfavorable resolutions could include substantial monetary damages. In addition, in matters for which injunctive relief or other conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling on or more products at all or in particular ways, precluding particular business practices, or requiring other remedies.

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