Abbott Laboratories (ABT) engages in the discovery, development, manufacture, an

Question

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.

Using the P/E, P/CF, and P/S ratios, estimate the 2013 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.

Explanation / Answer

Beta=.6, risk Free rate=3.21%, Market Risk Premium=6%

Average price of year 2012=57.4+43.70/2=50.55

Ke=Rf+Beta(Rm-Rf) Rf=Risk free rate, Rm-Rf=Market Risk Premium

=3.21+.6(6)

=6.81%

P0=D1+P1/(1+Ke)n

50.55=0+p1/(1+6.81%)1

50.55=P1/1.0681

P1=53.99

Price of next year= $ 53.99

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