Question

Assume Gillette Corporation will pay an annual dividend of $0.66 one year from now. Analysts expect this dividend to grow at 11.2% per year thereafter until the 44th year.​ Thereafter, growth will level off at 2.2% per year. According to the​ dividend-discount model, what is the value of a share of Gillette stock if the​ firm's equity cost of capital is 8.1%​?

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AFW Industries has 195 million shares outstanding and expects earnings at the end of this year of $712 million. AFW plans to pay out 65% of its earnings in​ total, paying 40% as a dividend and using 25% to repurchase shares. If​ AFW's earnings are expected to grow by 8.8% per year and these payout rates remain​ constant, determine​ AFW's share price assuming an equity cost of capital of 12.2%.

Answer 1

P0 = D1 * PVF(r, N) + D2* PVF(r, N) + D3* PVF(r, N) + . . . . . D44* PVF(r, N) + P44* PVF(r, N)

P0 = 0.66*PVF(8.1%,1) + 0.66*(1.112)*PVF(8.1%,2) + . . . . . 0.66*(1.112)⁴³*PVF(8.1%,44) + 0.66*(1.112)⁴³* (1.022)/ (0.081-0.022) * PVF(8.1%,44)

P0 = 99.39

	DIV/P	PVF (8.1%)	PVCF
D1	0.66	0.925069	0.610546
D2	0.73656	0.855753	0.630314
D3	0.822001	0.791631	0.650722
D4	0.917353	0.732314	0.67179
D5	1.023766	0.677441	0.693541
D6	1.142523	0.62668	0.715996
D7	1.275056	0.579722	0.739178
D8	1.422962	0.536284	0.763111
D9	1.588026	0.496099	0.787819
D10	1.772237	0.458926	0.813326
D11	1.977816	0.424539	0.83966
D12	2.207243	0.392728	0.866846
D13	2.463283	0.3633	0.894912
D14	2.749024	0.336078	0.923887
D15	3.06791	0.310896	0.9538
D16	3.423788	0.2876	0.984681
D17	3.820947	0.26605	1.016563
D18	4.264177	0.246115	1.049477
D19	4.758822	0.227673	1.083456
D20	5.310845	0.210613	1.118535
D21	5.926903	0.194832	1.154751
D22	6.614424	0.180233	1.192139
D23	7.381697	0.166728	1.230737
D24	8.237974	0.154235	1.270585
D25	9.193579	0.142678	1.311723
D26	10.26003	0.131987	1.354194
D27	11.4502	0.122097	1.398039
D28	12.77842	0.112949	1.443304
D29	14.26072	0.104485	1.490034
D30	15.91496	0.096656	1.538278
D31	17.7611	0.089414	1.588083
D32	19.82138	0.082714	1.639501
D33	22.12066	0.076516	1.692584
D34	24.68666	0.070783	1.747386
D35	27.55031	0.065479	1.803961
D36	30.74615	0.060572	1.862369
D37	34.3127	0.056034	1.922668
D38	38.29298	0.051835	1.984919
D39	42.73496	0.047951	2.049185
D40	47.69222	0.044358	2.115533
D41	53.22452	0.041034	2.184028
D42	59.39856	0.03796	2.254742
D43	66.28879	0.035115	2.327744
D44	73.97829	0.032484	2.403111
P44	1281.454	0.032484	41.62676
P0			99.39452

2.

Expected Earnings per share = Total Expected earnings end of year / shares outstanding = $ 712 million* 0.65 / (0.122- 0.088)

= $ 13,611.76

Share price = 13,611.76 million / 195 million

Share price = $69.80