Colgate-Palmolive Company has just paid an annual dividend of $ 1.81. Analysts are predicting dividends to...

Colgate-Palmolive Company has just paid an annual dividend of $ 1.81. Analysts are predicting dividends to grow by $ 0.18 per year over the next five years. After then, Colgate's earnings are expected to grow 6.7 % per year, and its dividend payout rate will remain constant. If Colgate's equity cost of capital is 8.1 % per year, what price does the dividend-discount model predict Colgate stock should sell for today?

The price per share is ( ) $ (Round to two decimal places).

Expert Solution

Calculation of current price:
Year	Cashflows	PVF @8.1%	Present value
1	1.99	0.925	1.84
2	2.17	0.856	1.86
3	2.35	0.792	1.86
4	2.53	0.732	1.85
5	2.71	0.677	1.84
5	206.54	0.677	139.83
Total			149.07
Current price is $149.07

Working:

Terminal value= Dividend(1+growth)/(return-growth)
=2.71*(1+0.067)/(0.081-0.067)
=2.89157/0.014= 206.54

jeff jeffy answered 1 year ago

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