Question

Procter and Gamble​ (PG) paid an annual dividend of $ 1.62$1.62 in 2009. You expect PG to increase its dividends by 8.1 %8.1% per year for the next five years​ (through 2014), and thereafter by 2.9 %2.9% per year. If the appropriate equity cost of capital for Procter and Gamble is 7.3 %7.3% per​ year, use the​ dividend-discount model to estimate its value per share at the end of 2009.

The price per share is ​$____?  (Round to the nearest​ cent.)

Answer 1

Price of STock = PV of CFs from it.

Div Calculation:

Year	CF	Formula	Calculation
1	1.75122	D0(1+g)	1.62(1.081)
2	1.893069	D1(1+g)	1.75(1.081)
3	2.046407	D2(1+g)	1.89(1.081)
4	2.212166	D3(1+g)	2.05(1.081)
5	2.391352	D4(1+g)	2.21(1.081)
6	2.460701	D5(1+g)	2.39(1.029)

P5 = D6 / [ Ke - g ]

D6 = Div after 6 Years

P5 = Price after 5 Years

Ke = Required Ret

G = Growth rate

= $2.4607 / [ 7.3% - 2.9% ]

= $2.4607 / [ 4.4% ]

= $55.93

P0 Calculation:

Year	Partculars	CF	PVF @7.3%	Disc CF
1	D1	$      1.75	0.9320	$      1.63
2	D2	$      1.89	0.8686	$      1.64
3	D3	$      2.05	0.8095	$      1.66
4	D4	$      2.21	0.7544	$      1.67
5	D5	$      2.39	0.7031	$      1.68
5	P5	$   55.93	0.7031	$   39.32
Price of Stock				$   47.61