Abbott Laboratories Problem. After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete the following Problems and submit your work to your instructor.
What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.
Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.
Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.
Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?
Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?