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tep 1: Find the discount rate: Following industry practice when apply the CAPM model; we will use Treasury bill rate of 4% and a historical stock market risk premium of 7% to find PG's discount rate. Examine the Procter & Gamble's financial report, find the beta value and then apply all values to the CAPM to estimate the discount rate for PG.

tep 1: Find the discount rate: Following industry practice when apply the CAPM model; we will use Treasury bill rate of 4% and a historical stock market risk premium of 7% to find PG's discount rate. Examine the Procter & Gamble's financial report, find the beta value and then apply all values to the CAPM to estimate the discount rate for PG.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Step 1: Find the discount rate: Following industry practice when apply the CAPM model; we will use Treasury bill rate of 4% and a historical stock market risk premium of 7% to find PG's discount rate. Examine the Procter & Gamble's financial report, find the beta value and then apply all values to the CAPM to estimate the discount rate for PG.
Transcribed Image Text:Step 1: Find the discount rate: Following industry practice when apply the CAPM model; we will use Treasury bill rate of 4% and a historical stock market risk premium of 7% to find PG's discount rate. Examine the Procter & Gamble's financial report, find the beta value and then apply all values to the CAPM to estimate the discount rate for PG.
PROCTER & GAMBLE NYSE-PG TIMELINESS 3 Raised 121021 SAFETY 1 Rased 1/11/02 TECHNICAL 4 Lowered 121021 BETA 70 (1.00 Marke 18-Month Target Price Range Low-High Midpoint (% to Mid) $129-$179 $154 (0%) 2024-26 PROJECTIONS Ann1 Total Return Price Gain High 155 (Nil) 3% Low 130 (-15%) -1% Institutional Decisions 21.5 20.5 1.16 1.09 2.0% 2.1% CAPITAL STRUCTURE as of 9/30/21 Total Debt $32.547 bill. Due in 5 Yrs $10.0 bill LT Debt $20.558 bill. LT Interest $1.0 bill (Tot. Int. Coverage: 36.9x) Current Assets Accts Payable Debt Due Other Current Liab. 25398 MARKET CAP: $368 billion (Large Cap) CURRENT POSITION 2020 (SMILL) Cash Assets Receivables Inventory (FIFO) Other ANNUAL RATES of change (per sh High: 65.4 67,7 Low 394 57.6 59.1 LEGENDS 160 x "Cash Flow" p sh Relative Price Strengh Options Yes Shaded area indicates recession (31% of Tot. Cap) Leases, Uncapitalized Annual Rentals $219 mill Pension Assets-6/21 $13.0 bil Sales "Cash Flow" Earnings Oblig. $18.5 bill Pid Stock $870 mill. Pfd Div'd $271 mil. (ESOP owns 49.3 mill Class A shares and 57.2 mill Class B shares; convertible into common stock) Common Stock 2,419,947,819 shares Past 10 Yrs. 12 A 17.0 1.08 3.0% 5% 2.5% 202021 30 Percent to Buy 1389 1395 1335 shares to Sel 1261 1201 1203 traded 000154826015387121536419 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 22.95 21.46 24.42 29.85 26,75 27.02 28.61 3.51 3.51 4.25 5.52 5.76 6.53 2.53 2.64 3.04 4.22 4.52 27.81 27.53 27.09 30.45 30.69 30.64 28.10 24.47 25.48 4.97 4.86 4.87 5.21 5.20 5.33 5.57 5.31 4.97 5.21 3.64 3.53 3.58 3.93 3.85 4.05 4.22 4,02 3.67 3.92 1.64 1.80 1.97 2.14 2.29 2.45 2.59 2.66 1.08 1.11 1.20 1.44 1.46 1.42 1.38 1.24 24.14 22.87 24.64 25.40 22.83 1.03 1.15 1.28 1.45 2.70 2.90 84 1.00 1.34 88 6.47 $4 20.87 1.30 21.34 21.45 20.78 19.33 22.46 21.18 21.20 18.47 18.40 18.73 20.80 Book Value per sh 2472.9 3178.8 3131.9 3032.7 2917.0 2838.5 2766.7 2748.0 27423 2710.8 2714.5 2668.1 2553.3 2498.1 2504.8 2479.7 2429.7 2415.0 Common Shs Outst'g 21.5 18.6 16.4 16.0 16.7 17.8 20.9 21.4 20.7 23.3 23.8 Avg Anni P/E Ratio 1.12 1.09 1.00 1.00 1.06 1.05 1.14 1.12 22.3 20.1 1.12 1.09 3.3% 3.1% 1.19 1.22 Relative P/E Ratio Avg Ann'1 Div'd Yield 2.1% 2.8% 1.9% 3.1% 3.1% 3.3% 3.2% 3.4% 24% 1.10 2.5% 3.1% 67684 70950 76118 27.0% 27.8% 3013.0 2735.0 13442 14733 69976 63050 57983 55778 52883 47194 46521 46378 17.9 % 19.5% 21.6% 25.2% 28.9% 31.8% 8.9% 11.8% 13.6 % 60% 65% 58% 82559 83680 84167 83062 76279 65299 65058 66832 22.6% 22.6% 22.3% 23.7% 23.4% 26.2% 26.4 % 25.9% 25.2% 2838.0 3204.0 2982.0 3141.0 3134.0 3078.0 2820.0 2834.0 2824.0 11877 11797 11344 11869 12220 11535 10441 10733 11205 22.3% 24.2% 23.2% 23.5% 20.2% 24.6% 23.8% 21.5% 19.4% 16.9% 18.1% 15.1% 16.0% 16.5% 16.8% 14.3% 13.6% 14.1% 14.7% 17.5% 18.9 % 19.4% d5323 d2997 06047 2109 d144.0 3012.0 d3716 04917 47538 04989 d10041 22033 21060 19111 19811 18329 18945 18038 20863 20395 23537 23099 68001 64035 68709 13.5% 13.8 % 13.9% 14.0% 14.6% 13.9% 14.9% 17.3% 17.7% 17.3% 17.5% 18.3% 18.0% 192 % 9.0% 8.3% 7.9% 7.7% 6.9% 5.3% 6.4% 57% 54% 63% 71% 55% 67% 49% BUSINESS: The Procter & Gamble Company makes branded con- sumer packaged goods, which are marketed and sold in more than 150 countries around the world. Operations incl. Fabric Care (22% of '21 sales); Home Care (12%); Baby Care (10%), Skin & Personal Care (10%), Hair Care (9%), Family Care (9%), Oral Care (8%). Shave Care (7%), Feminine Care (6%), Personal Health Care (5%). Procter & Gamble got off to a bumpy start in fiscal 2022. (Years end June 30th). Inflationary pressures led to higher input and freight costs, and narrowed margins over the last several months. Core earnings, in turn, slipped 1% during 15.5% 21.2% 7.5% 65% 16181 10288 10370 4178 4725 5662 5498 5963 6307 2130 2095 1997 27987 23091 24336 12071 13720 14223 11183 6889 9722 10523 10377 32976 33132 36589 11989 2021 9/30/21 RECENT 152.15 no 26.7 (21)ERATO 1.45 Trailing: 27.0 RELATIVE PIE Past Estd 19-21 5 Yrs 1.0% 4.0% 4.0% 6.0% 3.5% 5.0% 7.0% 71.0 85.8 93.9 91.8 90.3 94.7 96.9 126.6 146.9 152.4 68.4 75.3 65.0 74.5 83.2 70.7 89.1 94.3 121.5 M topta 19.0 1.00 2 3.1% MIC Sams Mar W 2.79 1.49 DIVD 2.3% YLD 5.12 3.03 124 VALUE 1194 LINE 31.33 7.08 5.66 3.24 1.15 Target Price Range 2024 2025 2026 % TOT. RETURN 11/21 VLANTH NCEL 26.9 56.3 THIS STOCK 6.7 1 yr. 643 3 yr 5 yr. 101.1 82.9 200 160 32.40 Sales per sh A 7.10 "Cash Flow" per sh 5.70 Earnings per sh 3.50 Div'ds Deck'd per sh 1.60 Cap1 Spending per sh -100 88888 88 -60 -50 -40 -30 20 VALUE LINE PUB. LLC 24-26 35.65 8.75 7.15 3.80 1.50 25.05 2400.0 20.0 1.10 2.7% 85500 28.5% 78475 Sales (Smil) 27.0% Operating Margin 3325 Depreciation (Smill) 13825 Net Profit (Smill) 22.0% Income Tax Rate 17.6% Net Profit Margin d5850 Working Cap' (Smill) 20000 Long-Term Debt (Smill) 50250 Shr. Equity (Smill) 19.5% Return on Total Cap 27.5% Return on Shr. Equity 10.5% Retained to Com Eq 61% All Div'ds to Net Prof and Other (2%). Walmart accounted for 15% of 2021 sales. Interna- tional sales were 56% of total sales in '21. Div. battery business in 2/16. Has 101,000 employees. Off/dir, own less than 1% of stock Vanguard, 9.0%, BlackRock, 6.7% (8/21 proxy). Chair/Pres/CEO: David S. Taylor. Ine: Ohio. Address: 1 Procter & Gamble Plaza, Cincinnati, Ohio 45202. Tel: 513-983-1100. Internet: www.pg.com. innovation should enable P&G to capture additional market share. All told, manage- ment expects sales to advance between 2% and 4% this year, with organic sales climb- ing at the same pace. Thus, we believe the top line will gain 3% in fiscal 2022. Core 3800 17160 21.0% 20.1% 1500 20000 62500 21.0% 27.5% 13.0% 53%
Transcribed Image Text:PROCTER & GAMBLE NYSE-PG TIMELINESS 3 Raised 121021 SAFETY 1 Rased 1/11/02 TECHNICAL 4 Lowered 121021 BETA 70 (1.00 Marke 18-Month Target Price Range Low-High Midpoint (% to Mid) $129-$179 $154 (0%) 2024-26 PROJECTIONS Ann1 Total Return Price Gain High 155 (Nil) 3% Low 130 (-15%) -1% Institutional Decisions 21.5 20.5 1.16 1.09 2.0% 2.1% CAPITAL STRUCTURE as of 9/30/21 Total Debt $32.547 bill. Due in 5 Yrs $10.0 bill LT Debt $20.558 bill. LT Interest $1.0 bill (Tot. Int. Coverage: 36.9x) Current Assets Accts Payable Debt Due Other Current Liab. 25398 MARKET CAP: $368 billion (Large Cap) CURRENT POSITION 2020 (SMILL) Cash Assets Receivables Inventory (FIFO) Other ANNUAL RATES of change (per sh High: 65.4 67,7 Low 394 57.6 59.1 LEGENDS 160 x "Cash Flow" p sh Relative Price Strengh Options Yes Shaded area indicates recession (31% of Tot. Cap) Leases, Uncapitalized Annual Rentals $219 mill Pension Assets-6/21 $13.0 bil Sales "Cash Flow" Earnings Oblig. $18.5 bill Pid Stock $870 mill. Pfd Div'd $271 mil. (ESOP owns 49.3 mill Class A shares and 57.2 mill Class B shares; convertible into common stock) Common Stock 2,419,947,819 shares Past 10 Yrs. 12 A 17.0 1.08 3.0% 5% 2.5% 202021 30 Percent to Buy 1389 1395 1335 shares to Sel 1261 1201 1203 traded 000154826015387121536419 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 22.95 21.46 24.42 29.85 26,75 27.02 28.61 3.51 3.51 4.25 5.52 5.76 6.53 2.53 2.64 3.04 4.22 4.52 27.81 27.53 27.09 30.45 30.69 30.64 28.10 24.47 25.48 4.97 4.86 4.87 5.21 5.20 5.33 5.57 5.31 4.97 5.21 3.64 3.53 3.58 3.93 3.85 4.05 4.22 4,02 3.67 3.92 1.64 1.80 1.97 2.14 2.29 2.45 2.59 2.66 1.08 1.11 1.20 1.44 1.46 1.42 1.38 1.24 24.14 22.87 24.64 25.40 22.83 1.03 1.15 1.28 1.45 2.70 2.90 84 1.00 1.34 88 6.47 $4 20.87 1.30 21.34 21.45 20.78 19.33 22.46 21.18 21.20 18.47 18.40 18.73 20.80 Book Value per sh 2472.9 3178.8 3131.9 3032.7 2917.0 2838.5 2766.7 2748.0 27423 2710.8 2714.5 2668.1 2553.3 2498.1 2504.8 2479.7 2429.7 2415.0 Common Shs Outst'g 21.5 18.6 16.4 16.0 16.7 17.8 20.9 21.4 20.7 23.3 23.8 Avg Anni P/E Ratio 1.12 1.09 1.00 1.00 1.06 1.05 1.14 1.12 22.3 20.1 1.12 1.09 3.3% 3.1% 1.19 1.22 Relative P/E Ratio Avg Ann'1 Div'd Yield 2.1% 2.8% 1.9% 3.1% 3.1% 3.3% 3.2% 3.4% 24% 1.10 2.5% 3.1% 67684 70950 76118 27.0% 27.8% 3013.0 2735.0 13442 14733 69976 63050 57983 55778 52883 47194 46521 46378 17.9 % 19.5% 21.6% 25.2% 28.9% 31.8% 8.9% 11.8% 13.6 % 60% 65% 58% 82559 83680 84167 83062 76279 65299 65058 66832 22.6% 22.6% 22.3% 23.7% 23.4% 26.2% 26.4 % 25.9% 25.2% 2838.0 3204.0 2982.0 3141.0 3134.0 3078.0 2820.0 2834.0 2824.0 11877 11797 11344 11869 12220 11535 10441 10733 11205 22.3% 24.2% 23.2% 23.5% 20.2% 24.6% 23.8% 21.5% 19.4% 16.9% 18.1% 15.1% 16.0% 16.5% 16.8% 14.3% 13.6% 14.1% 14.7% 17.5% 18.9 % 19.4% d5323 d2997 06047 2109 d144.0 3012.0 d3716 04917 47538 04989 d10041 22033 21060 19111 19811 18329 18945 18038 20863 20395 23537 23099 68001 64035 68709 13.5% 13.8 % 13.9% 14.0% 14.6% 13.9% 14.9% 17.3% 17.7% 17.3% 17.5% 18.3% 18.0% 192 % 9.0% 8.3% 7.9% 7.7% 6.9% 5.3% 6.4% 57% 54% 63% 71% 55% 67% 49% BUSINESS: The Procter & Gamble Company makes branded con- sumer packaged goods, which are marketed and sold in more than 150 countries around the world. Operations incl. Fabric Care (22% of '21 sales); Home Care (12%); Baby Care (10%), Skin & Personal Care (10%), Hair Care (9%), Family Care (9%), Oral Care (8%). Shave Care (7%), Feminine Care (6%), Personal Health Care (5%). Procter & Gamble got off to a bumpy start in fiscal 2022. (Years end June 30th). Inflationary pressures led to higher input and freight costs, and narrowed margins over the last several months. Core earnings, in turn, slipped 1% during 15.5% 21.2% 7.5% 65% 16181 10288 10370 4178 4725 5662 5498 5963 6307 2130 2095 1997 27987 23091 24336 12071 13720 14223 11183 6889 9722 10523 10377 32976 33132 36589 11989 2021 9/30/21 RECENT 152.15 no 26.7 (21)ERATO 1.45 Trailing: 27.0 RELATIVE PIE Past Estd 19-21 5 Yrs 1.0% 4.0% 4.0% 6.0% 3.5% 5.0% 7.0% 71.0 85.8 93.9 91.8 90.3 94.7 96.9 126.6 146.9 152.4 68.4 75.3 65.0 74.5 83.2 70.7 89.1 94.3 121.5 M topta 19.0 1.00 2 3.1% MIC Sams Mar W 2.79 1.49 DIVD 2.3% YLD 5.12 3.03 124 VALUE 1194 LINE 31.33 7.08 5.66 3.24 1.15 Target Price Range 2024 2025 2026 % TOT. RETURN 11/21 VLANTH NCEL 26.9 56.3 THIS STOCK 6.7 1 yr. 643 3 yr 5 yr. 101.1 82.9 200 160 32.40 Sales per sh A 7.10 "Cash Flow" per sh 5.70 Earnings per sh 3.50 Div'ds Deck'd per sh 1.60 Cap1 Spending per sh -100 88888 88 -60 -50 -40 -30 20 VALUE LINE PUB. LLC 24-26 35.65 8.75 7.15 3.80 1.50 25.05 2400.0 20.0 1.10 2.7% 85500 28.5% 78475 Sales (Smil) 27.0% Operating Margin 3325 Depreciation (Smill) 13825 Net Profit (Smill) 22.0% Income Tax Rate 17.6% Net Profit Margin d5850 Working Cap' (Smill) 20000 Long-Term Debt (Smill) 50250 Shr. Equity (Smill) 19.5% Return on Total Cap 27.5% Return on Shr. Equity 10.5% Retained to Com Eq 61% All Div'ds to Net Prof and Other (2%). Walmart accounted for 15% of 2021 sales. Interna- tional sales were 56% of total sales in '21. Div. battery business in 2/16. Has 101,000 employees. Off/dir, own less than 1% of stock Vanguard, 9.0%, BlackRock, 6.7% (8/21 proxy). Chair/Pres/CEO: David S. Taylor. Ine: Ohio. Address: 1 Procter & Gamble Plaza, Cincinnati, Ohio 45202. Tel: 513-983-1100. Internet: www.pg.com. innovation should enable P&G to capture additional market share. All told, manage- ment expects sales to advance between 2% and 4% this year, with organic sales climb- ing at the same pace. Thus, we believe the top line will gain 3% in fiscal 2022. Core 3800 17160 21.0% 20.1% 1500 20000 62500 21.0% 27.5% 13.0% 53%
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