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Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in 2009. You expect PG...

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Finance

Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in2009. You expect PG to increase its dividends by 7.3 % per year forthe next five years? (through 2014), and thereafter by 3.2 % peryear. If the appropriate equity cost of capital for Procter andGamble is 7.2 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.

a.) What is the price per share?

**Please show all work!**

Answer & Explanation Solved by verified expert
3.9 Ratings (714 Votes)

Required rate= 7.20%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 1.68 7.30% 1.80264 1.80264 1.072 1.6816
2 1.80264 7.30% 1.93423272 1.93423272 1.149184 1.68314
3 1.93423272 7.30% 2.075431709 2.075431709 1.231925248 1.68471
4 2.075431709 7.30% 2.226938223 2.226938223 1.320623866 1.69
5 2.226938223 7.30% 2.389504714 61.649 64.03850471 1.415708784 45.23
Long term growth rate (given)= 3.20% Value of Stock = Sum of discounted value = 51.97
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 5 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

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Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in2009. You expect PG to increase its dividends by 7.3 % per year forthe next five years? (through 2014), and thereafter by 3.2 % peryear. If the appropriate equity cost of capital for Procter andGamble is 7.2 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.a.) What is the price per share?**Please show all work!**

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