Question

Procter and Gamble​ (PG) paid an annual dividend of $ 1.66 in 2009. You expect PG to increase its dividends by 7.1 % per year for the next five years​ (through 2014), and thereafter by 2.8 % per year. If the appropriate equity cost of capital for Procter and Gamble is 8.7 % 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

	Required rate=	8.70%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	1.66	7.10%	1.77786		1.77786	1.087	1.6356
2	1.77786	7.10%	1.90408806		1.90408806	1.181569	1.61149
3	1.90408806	7.10%	2.039278312		2.039278312	1.284365503	1.58777
4	2.039278312	7.10%	2.184067072		2.184067072	1.396105302	1.5644
5	2.184067072	7.10%	2.339135835	40.756	43.09513583	1.517566463	28.39753
	Long term growth rate (given)=	2.80%			Value of Stock =	Sum of discounted value =	34.8

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