Fundamentals of Investments 7th edition: chapter 6

Q31: 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?

27. Constant Perpetual Growth Model (LO1, CFA6) 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. Price Ratios (LO4, CFA8) 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. Residual Income Model (LO3, CFA9) 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. Clean Surplus Dividend (LO3, CFA9) 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. Stock Valuation (LO1, LO3, LO4) 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? 32. Residual Income Model and Nonconstant Growth (L03, CFA9) When a stock is going through a period of nonconstant growth for T periods, followed by constant growth forever, the residual income model can be modified as follows Al's Infrared Sandwich Company had a book value of $12.95 at the beginning of the year, and the earnings per share for the past year were $3.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 12.5 and 11 percent per year for the next four years, respectively After four years, the growth rate is expected to be 6 percent. Molly believes the required return for the company is 8.2 percent. What is the value per share for Als Infrared Sandwich Company