Johnson & Johnson (NYSE: JNJ) is one of the world's largest manufacturers of health care products, as well

as a provider of related services, for the consumer, pharmaceutical, and medical devices and diagnostics

markets. An analyst friend of yours has asked you to help analyze JNJs recent cash flow performance,

perform a base-case valuation, and help with some forecasting. The analyst tells you the following: JNJs

equity beta is 0.75, the unlevered beta is 0.65, the market risk premium is 5.20%, the risk free rate is 4.875%

and the debt beta is 0.25. JNJs required cash needs are 2.0% of revenues. JNJs closing stock price at the

end of December 2007 was $66.70.

Required: There are four parts to this problem. The income statement, the balance sheet and the statement

of cash flows for the fiscal year ending 12/31/2007..

1. Calculate JNJs free cash flow of the unlevered firm (FCFU) as well as the free cash flow to common

equity (FCFCE) for fiscal year 2007. Use the operating asset view.

2.

Estimate the value per share for JNJ as of December 31, 2007, using the FCFCE model. Assume that

the firm is in steady state at this point in time. The firm is assumed to grow at 3% in perpetuit