Question: The Expected Return to Buying a Google Share (Medium) Exhibit 7.1 lays out a proforma for Google, Inc., as of May 2011. Refer to the exhibit to answer the following questions:
a. Working with EPS forecasts for just one year ahead (2011 ), calculate the expected return to buying Google with a forecast of a 4 percent growth rate for residual earnings after the forward year. What is the expected return for a 5 percent growth rate and a 6 percent growth rate? What is the expected return if no growth is expected?
b. Now repeat the exercise with two years of EPS forecasts (2011 and 2012) with the forecasted growth rates being for the third year (2013) onwards.
