The McGraw-Hill Companies, Inc. (MHP)

YoungInvestor99 (< 20) Submitted: 5/02/08 10:52 PM

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How did you calculate that?

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JCSmiley (< 20) Submitted: 5/14/08 1:05 PM

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The way I calculated the intrinsic value is described below (this is a quick and dirty estimate):

-Take the projected earnings and divide it by the current interest rate for the 10-yr T-Bill (if the interest rate is below 6%, use 6% instead...the current interest rate is around 3.81%, so use 6%). This will tell you if it is undervalued or overvalued. Looking at it currently, take $2.81/.06 = $46.83. MHP is worth $46.83/share based on projected earnings for '08. You can do the same thing for '09 projected earnings and you get $3.21/.06 = $53.50/share. It is currently trading for $43/share which is slightly below the intrinsic value based on projected earnings.

-From this information you can find a percentage it is trading for. The equation is 1 - (Current Value/Intrinsic Value). Currently, MHP is trading at 1 - (43.51/46.83) = .07 (Convert to a percentage by multiplying by 100) .07*100 = 7% discount because the current price is less than the intrinsic value price.

I hope this helps!

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