13.9
9.A friend comes to you and says, "Microsoft is worth $115 billion and General Motors is worth $42.4 billion. Yet, Microsoft only earns $2.25 billion per year while GM earns $4.73 billion per year. How can a company that earns about half as much of GM be worth almost 3 times as much as it?!" What do you tell your friend? "Get a life." is not a good answer. (10 pts)
A company’s value can come from two sources. One is current earnings, and the other is growth. If the stock market is willing to value Microsoft highly despite its low current earnings, it must simply be that market participants expect strong growth in the future--much higher than the growth they expect from GM.