Abbott Laboratories Problem Use the following information to answer problems 27-31: Abbott Laboratories (ABT) engages in the discovery, development, manufacturer, 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 2009 figures as actual year-end figures for the company. The beta reported was .60 and the risk-free rate was 3.13 percent. Assume a market risk premium of 7 percent. The high and low share price each year were: 2005 2006 2007 2008 2009 High $50.00 $49.90 $59.50 $61.10 $57.40 Low 37.50 39.20 48.80 45.80 41.30 (The value line chart is separate.) 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 Problems 27, 28, 29, 30, and 31 and submit your work to your instructor. Show your calculations and in your response to Problem 31 write a 100- to 200-word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share. 27. 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. 28. 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. 29. 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. 30. 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? 31. 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? 2005 2006 2007 2008 2009 2010 Value Line Pub, Inc. 14.51 14.62 16.72 19.40 19.70 21.45 Sales per sh 3.42 3.51 4.05 4.32 4.95 5.50 Cash flow per sh 2.50 2.52 2.84 3.03 3.65 4.15 Earn per sh 1.10 1.18 1.30 1.44 1.60 1.76 Div Dec per sh .78 .87 1.07 .85 1.10 1.15 Capl spend per sh 9.37 9.14 11.47 11.48 12.95 14.90 Book val per sh 1539.2 1537.2 1549.9 1522.4 1545.0 1540.0 Common Shs Outst g 18.1 17.9 19.2 18.3 Bold value line estimates Avg ann