analyze the financial impact of johnson and johnson settlement on the stock price. As an analyst,...

analyze the financial impact of johnson and johnson settlement on the stock price. As an analyst, how would you QUANTITATIVELY measure the impact of this settlement on the stock price?

Expert Solution

Answer: Johnson and Johnson settlement- Johnson & Johnson has been facing many law suits regarding its products that are talc, hip plant, blood thinner etc. There are around 50000 cases against the company. Company has penalty of heavy amounts. Here are mainly four categories lawsuit currently:

Talc 14000
Hip plant 6000
Artificial hip 4500
Blood thinner 25000

Company has to pay total $6 Billion in these law suits.

Impact of this settlement on the stock price- $6 Billion is huge that company has to pay of its cash. Paying the penalty will decrease the cash in the company. Its cash flow will be lower, it will not be able to reinvest the cash into the business for further expansion. Company's growth will be affected so as the stock price, investors who have the holding of Johnson & Johnson's share will sell their holding in this situation, new investors will not buy Johnson & Johnson's share util the claim gets settled fully. So its stock price will definitely come down.

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