Question

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 2012 figures as the actual year-end figures for the company. The beta reported was .9 and the risk-free rate was 3.70 percent. Assume a market risk premium of 7 percent. The high and low share price each year were: 2008 2009 2010 2011 2012 High $ 53 $ 64.9 $ 61.0 $ 67.1 $ 57.4 Low 40.8 53.4 41.3 45.8 42.3 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. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.) Price ratio P/E $ P/CF $ P/S $

Answer 1

Expected return = 3.7 + (0.9×7.0)

=10

Price earning ratio= Share Price / EPS

= 76.73/EPS

P/CF ratio = Price/ cash flow

=76.73/CF

P/S ratio = market capitalisation/ Annual sales

=7/ Annual sales

Average price for each year

2008 46.9

2009 118.3

2010 112.15

2011 56.45

2012 49.85

Average of five years 76.73

Expected share price = 76.73 if we talk based on data available for last five years.