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Merck - an Analysis

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FIN-516 – WEEK 2 – MINI – CASE
Merck & Co., Inc. by M. Luisa Ribeiro 1. Merck & Co., Inc. is a company in the Pharmaceutical Sector.
The headquarters are in Whitehouse Station, NJ but it has global presence providing prescription pharmaceuticals, animal health, and consumer care, which include animal health, consumer care products and pharmaceutical medicines which include vaccines, biologic therapies. Merck’s products are marketed directly and through joint ventures. 2. Merck’s operating risks:
Merck’s operating risks include recently expired and expiring patented medications which are and soon will be facing market competition from generics, and fewer that optimal products in the development stage to be brought to …show more content…

The Cost of Preferred Stock:
The company doesn’t have issued and outstanding Preferred stock 11. The cost of Equity:
Required rate of return on Equity (rE) Calculation : rE = rF + B ( rM + rF)
Assumption:
Risk Free rate, rF = 3.0%
Market rate, rM = 11% rE = 3.0% + .39 ( 11%-3%) rE = 3.0% + 0.39 x 8% = 3.0 + 3.12 = rE = 6.12

12. The cash dividend yield on the Common Stock Is
$0.432 per share paid quarterly 13. The Weighted Average Cost of Capital of the company is:
WACC = rD (1- Tc )*( D / V )+ rE *( E / V )
Tc= 27.9%
Total Debt: D= 19,042 billion
Total Equity: 3019.61Million Issued and Outstanding shares of Common Stock x $47.16
E=$142,404.98 Million
Value : V = 19,042 billion + 142,404.98 Million
V=161,446.98 billion
WACC = 3.75 (1-0.279)*( 19,042 / 161,446.98)+ 6.12 *( 142,404.98 / 161,446.98)=
=(2.70 * 0.12 ) + (6.12 * 0.88) =
WACC = 0.32+ 5.4 = 5.72

14. What is the Price Earnings Multiple of the company?
Price of a share per earning per share on December 31, 2012 :
$47.16 / ($6,165 M / 3,019.61M shares)= 23.10 15. How has the company’s stock been performing in the last 5 years?
Merck stock price has increased from $38.35/share on June 3, 2098 closing at 47.16 on May 24, 2013. The stock performance over the last five subsequent years has had significant fluctuation, trading at a low

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