What is the sustainable growth rate and required return

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Reference no: EM13724926

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2009 figures as the actual year-end figures for the company. The beta reported was .60 and the risk-free rate was 3.13 percent. Assume a market risk premium of 7 percent,

Problem 1: What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.

Problem 2: Using the P/E, P/CF, and P/S ratios, estimates the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.

Problem 3: Assume the sustainable growth rate and required return you calculated in Problem 27 is valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.

Problem 4: Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?

Problem 5: Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?

Show your calculations, and in your response to Problem 5, write a one-page defence of your position as to the value of Abbott Laboratories stock at its current price of $50 per share. Format your page per APA style guidelines.

Reference no: EM13724926

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