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just having trouble with 6, help would be greatly appreciated As a new junior analyst for a large brokerage firm. you are anxious to demonstrate

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just having trouble with 6, help would be greatly appreciated

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As a new junior analyst for a large brokerage firm. you are anxious to demonstrate the skills you learned at university and to prove that you are worth your attractive salary. Your first assignment is to analyse the shares of Johnson & Johnson. Your boss recommends determining prices based on both the discounted free cash flow valuation method and the comparable P/E ratio methodt You are a little concerned about this recommendation because your finance lecturer has told you these two valuation methods can result in widely differing estimates when applied to real data. You are really hoping the two methods will reach similar prices. Good luck with thatl -- -v ... W ... .. r- ...._-.. .... u... __._ .v. -_-.. ...__...._, . ..-. .... _. .... -.. ..._ ..._ _._--_.-... ..._,... _.._ -..--. ...- . I .. ._.... .... n.-. 6. To determine the share value based on the discounted free cash flow method: a. forecast the free cash ows using the historic data from the financial statements downloaded from Yahoo! Finance to compute the three-year average of the following ratios: i. EBlT/sales; ii. tax rate [income tax expense/income before tax]; iii. property, plant and equipment/sales; iv. depreciation] property, plant and equipment; v. net working capital/sales. 57 create an empty timeline for the next ve years; forecast future sales based on the most recentyear's total revenue growing at the five-year growth rate from Yahoo! Finance for the first five years; use the average ratios computed in part (a) to forecast EBIT, property, plant and equipment depreciation and net working capital for the next five years; forecast the free cash ows for the next ve years using Eq. 10.2; determine the - _- for year 5 using Eq. 10.6 and a long-run growth rate of4% and a cost of capital for ]N] of 11%; determine the enterprise value ofthe firm as the presentvalue nfthe free cash ows: Fan-"\"999 determine the share price using Eq. 10.4. Note thatyour enterprise value is in thousands of dollars and the number of shares outstanding is in billions

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