This is the final installment in a series of cases on Procter & Gamble Co. that began in Minicase 9.1 with the reformulation of financial statements and continued with a financial statement analysis in Minicases 11.1 and 12.1 Minicase 14.1 carried out a valuation of the firm, using only information from financial statement analysis. This final installment applies full pro forma analysis to forecasting and valuation.

In July 2008, just after 2008 fiscal-year end, the 3,033 million outstanding shares of P&G were trading at $64. Analysts were forecasting $4.28 in earnings per share for fiscal year 2009, giving it a forward P/E of 15. But the consensus forecast for 2010 was only $4.21, indicating negative EPS growth. Analysts' PEG ratio, based on an estimate of five years of earnings growth, was 1.46.

A. Initializing on the reformulated statements for 2008, develop a pro forma that would justify the market price but which recognizes that profit margins and asset turnovers that P&G has reported in the past How much would the future have to be different from the past to justify the current market price? To start, use a required equity return of 8.5 percent but convert it to an unlevered required return (for operations). You may wish to employ a spread sheet like that in the BYOAP on the book's Web site.

B. Develop a sensitivity analysis that shows how the value per share might change with different forecasts that you consider to be reasonable.