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 Use the estimated 2012 figures as
the actual year-end figures for the company. The beta reported was
.40 and the risk-free rate was 2.75 percent. Assume a market risk
premium of 7 percent. Page 218 The high and low share prices each year were: d 27. What is the sustainable growth rate and required return for Abbott
Laboratories? Using these values, calculate the 2013 share price of
Abbott Laboratories stock according to the constant dividend growth
model. 28. Using the P/E, P/CF,
and P/S ratios, estimate the 2013 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. Answer 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 $62? At
what price do you feel the stock should sell?