Just needed help with all of question 6 for this question.
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 8i Johnson. Your boss recommends determining prices based on both the discounted free cash flow valuation method and the comparable P/E ratio method. 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 1. Go to Yahoo! Finance (WWW-mm) and enter the symbol for lohnson & lohnson UNI). From the main page for IN], gather the following information and enter it into a spreadsheet: a. the current share price (last trade) at the top of the page; the EPS [ma]. 2. Click on 'Statistics', nd the numh er of shares outstanding (under 'Share Statistics] and enter it in the same spreadsheet a. Click on 'Analysts'. nd the expected growth rate for the next ve years and enter it into your spreadsheet. it will he near the very bottom of the page. 4. Click on 'Financials' and ensure that 'lncome Statement' is selected. Copy and paste the entire three years' worth ofincome statements into a new worksheet in your existing Excel le. Repeat this process for hoth the halance sheet and the cash flow statement for IN]. Keep all ofthe different statements in the same Excel worksheet. 5. Go to mmnmmmzwmmmeum which provides financial data for each industry. Scroll down to 'Drug Manufacturers Major' and enter the P/E ratio for that industry in the spreadsheetyou used to record the data from steps 13. 6. To determine the share value based on the discounted free cash ow method: a. forecast the free cash flows using the historic data from the financial statements downloaded from Yahoo! Finance to compute the three-year average ofthe following ratios: i. EBIT/sales; ii. tax rate (income tax expense/income hefore tax]; iii. property, plant and equip ment/sales; iv. depreciation/property. plant and equipment; v. net working capital/sales. h. create an empty timeline for the next ve years; forecast future sales based on the most recentyear's total revenue growing at the ve-year growth rate from Yahoo! Finance for the first ve 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 flows for the next ve years using Eq. 10.2; determine the - -- for year 5 using liq. 10.6 and a long-run growth rate of4% and a cost of capital for 1N] of 11%; determine the enterprise value of the firm as the present value ofthe free cash flows; wrap-9 'F h. determine the share price using Eq. 10.4. Note that your enterprise value is in thousands of dollars and the number of shares outstanding is in billions
