Question 5 and 7

5) Example 1, based on a study of Intel Corporation that used a present value model (Cornell 2001), examined what future revenue growth rates were consis- tent 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 thereafter." Discuss the impli- cations of using a higher discount rate than Cornell did. Discuss how understanding a company's business (the first step in equity valu- ation) might be useful in performing a sensitivity analysis related to a valuation of the company. 6 7) In a research note on the ordinary shares of the Milan Fashion Group (MFG) dated early July 2007 when a recent price was 7.73 and projected annual div idends were 0.05, an analyst stated a target price of 9.20. The research note did not discuss how the target price was obtained or how it should be inter- preted. Assume the target price represents the expected price of MFG. What further specific pieces of information would you need to form an opinion on whether MFG was fairly valued, overvalued, or undervalued