PROBLEM 8-8 Given Levered equity beta Risk free rate (10 year US Treasury bond) Market risk premium 1.27 5.02% 5.00% stimated eamings Dividend payout ratio 5.69 0.026462039 dates 40.00% 86.01 10.00% 5-year growth rate estimate Long-term Debt to ul Return orn Dividend Yield % Price to Book Net Profit Price To Free Description Market Ca P/E Value Cash Flow UUI 14.94% 18.40% 23.72% 18.16% 14.27% 11 .56% 15.70% 1.48% 16.606 15.900 19.276 14.150 24.685 17.943 23.537 50.471 Sector Industrial Goods Industry: Industrial Equipment & Components Emerson Electric Co Parker-Hannifin Corp Roper Industries Inc. Pentair Inc. Walter Industries Inc $34.61B 9.81B 4.44B 3.23B 2.40% 1.20% 0.50% 1.70% 0.30% 0.649 0.494 0.308 0.603 0.485 4.036 4.257 2.298 3.122 1.974 2.731 5.40% 7.90% 9.54% 8.25% 11 .89% 4.48% 7.38% 75.481 134.900 65.156 34.392 232.735 147.667 10.682 Given Solution Legend Value given in problem Emerson Comparison to Industr - Formula/Calculation/Analysis required Qualitative analysis or Short answer required ROE Dividend Yield LTD to Equity Price to Book Net Profit Margin Price to Cash Flow - Goal Seek or Solver cell Crystal Ball Input - Crystal Ball Ou 8 VALUING THE EQUITY OF A STABLE-GROWTH FIRM The Emerson Electric Company (EMR) was founded in 1890 and is located in St. Louis, Missouri. The firm provides product technologies and engineering services for industrial, commercial, and con sumer markets worldwide. The firm operates in five business segments: process man- agement, industrial automation, network power, climate technologies, and appliance and tools. The company has a lengthy history of dividend payments and steady growth. In recent years, the firm's dividend payout has averaged 40% of earnings. For 2007, firm earnings were estimated to be $5.69 a share, and on December 7, 2006, Emerson's shares were trading for $86.01, and has a price-earnings ratio of 19.26. Data for the industry, sector, Emerson, and four competitor firms are shown on next page. a. Is Emerson's current stock price reasonable in light of its sector, industry, and com- parison firms