Question

Please use the 2018 data for Johnson and Johnson (JNJ) presented below (All numbers in millions except for per share data) to answer the following 5 questions Net Income Shareholder's Equity Earnings per share Dividend per share $15,297 $59,752 $4.21 $3.54

1. JNJs ROE is closest to:

1. 19.2%
2. 25.6%
3. 28.4%
4. 32.9%

2. JNJs Payout Ration is closest to:

1. 36.9%
2. 48.7%
3. 63.1%
4. 84.1%

3. JNJs Retention Rateis closest to:

1. 6.9%
2. 11.3%
3. 16.0%
4. 23.1%

4. JNJs sustainable growth rate is closest to:

1. 4.10%
2. 7.89%
3. 8.35%
4. 9.45%

5. What is the value of JNJ stock using the perpetual growth model and a discount rate of 6.8%?

1. $129.16
2. $136.49
3. $141.54
4. $232.64

Answer 1

ROE=net income / shareholders equity

=15297/59752

=0.2560*100

=25.6%

Payout ratio=dividend per share/earning per share

=3.54/4.21

=0.841*100

=84.1%

Retention ratio =1- payout ratio

=1-0.841

=0.16*100

=16%

Sustainable growth rate=retention retio× ROE

=0.16*0.256

=0.041*100

=4.1%