5. Example 1-1, based on a study of Intel Corp that used a present value model (

Question

5. Example 1-1, based on a study of Intel Corp that used a present value model (Cornell 2001), examined what future revenue growth rates were consistent with Intel's stock price of $61.50 just prior to its earnings announcement, and $43.31 only five days later. The example states, "Using a conservatively low discount rate, Cornell estimated that Intel's price before the announcement, $61.50, was consistent with a forecasted growth rate of 20 percent a year for the subsequent 10 years and then 6 percent per year there after." Discuss the implication of using a higher discount rate than Cornell did.

Explanation / Answer

0.20*61.50*10 = 307.5 dollars interest

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