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Abbott Laboratories
Problem. After reading the Value Line figures
and information on Abbott Laboratories in the Questions and Problems section of
Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31
and submit to your instructor. Show your calculations and in your response to
problem 31 write a 100 to 200 word defense of your position as to the value of
Abbott Laboratories stock at its current price of $50 per share.
27. 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.
28. Using the P/E, P/CF, and
P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the
average stock price each year to calculate the price ratios.
29. Assume the sustainable
growth rate and required return you calculated in Problem 27 are valid. Use the
clean surplus relationship to calculate the share price for Abbott Laboratories
with the residual income model.
30. 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?
31. 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?
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