a. Calculate the value per share in early 2005 with a forecast that residual earnings will grow at a long-term GDP growth rate of 4 percent after 2006.
b. GE traded at $36 per share in early 2005. Construct a building-block diagram, like that in Figure 7.4, displaying the components of this $36 price that are attributable to book value, short-term earnings expectations, and speculation about long-term growth.
c. What is the forecast of the residual earnings growth rate after 2006 that is implied by the $36 market price?
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