5. Johnson \& Johnson, a leading manufacturer of health care products, had a return on equity of 31.5% in 1993 , and paid out 37% of its earnings as dividends. The stock had a beta of 1.25 . (The Treasury bond rate was 6%, and the risk premium was 5.5%.) The extraordinary growth was expected to last for 10 years, after which the growth rate was expected to drop to 6% and the return on equity to 15% (the beta would move to 1 ). a. Assuming the return on equity and dividend payout ratio continue at current levels for the high growth period, estimate the PBV ratio for Johnson \& Johnson. b. If health care reform passes, it is believed that Johnson \& Johnson's return on equity will drop to 20% for the high growth phase. If the company chooses to maintain its existing dividend payout ratio, estimate the new PBV ratio for Johnson \& Johnson. (You can assume that the inputs for the steady state period are unaffected.)