1. You expect Procter & Gamble will pay a dividend of $7.8 billion and repurchase $7.3 billion of its common shares next year (Year 1) with both expected to grow 5% in Year 2 and 4% in Year 3. If you expect P&Gs market cap will be $340 billion at the end of Year 3, and you have calculated the cost of equity to be 8.0%, what do you estimate the true value of the companys net worth to be now? (First draw a timeline. Assume all cash flows are at year-end.)
2. Citigroups p-e ratio is 10x, while J. P. Morgans p-e ratio is 12.6x. If you believe Citigroup has equal prospects for future eps growth, which stock would you buy?