Assume Gillette Corporation will pay an annual dividend of $0.62 one year from now. Analysts expect...

Free

50.1K

Verified Solution

Question

Finance

Assume Gillette Corporation will pay an annual dividend of $0.62one year from now. Analysts expect this dividend to grow at 12.6%per year thereafter until the 55th year.? Thereafter, growth willlevel off at 2.3% per year. According to the? dividend-discountmodel, what is the value of a share of Gillette stock if the?firm's equity cost of capital is 8.8%??

Answer & Explanation Solved by verified expert

4.2 Ratings (860 Votes)

	Required rate=	8.80%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	0	0.00%	0.62		0.62	1.088	0.5699
2	0.62	12.60%	0.69812		0.69812	1.183744	0.58976
3	0.69812	12.60%	0.78608312		0.78608312	1.287913472	0.61035
4	0.78608312	12.60%	0.885129593	13.931	14.81612959	1.401249858	10.57
	Long term growth rate (given)=	2.30%			Value of Stock =	Sum of discounted value =	12.34

Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Unless dividend for the year provided
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 4 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Assume Gillette Corporation will pay an annual dividend of $0.62one year from now. Analysts expect this dividend to grow at 12.6%per year thereafter until the 55th year.? Thereafter, growth willlevel off at 2.3% per year. According to the? dividend-discountmodel, what is the value of a share of Gillette stock if the?firm's equity cost of capital is 8.8%??

Assume Gillette Corporation will pay an annual dividend of $0.62 one year from now. Analysts expect...

Free

50.1K

Verified Solution

Question

Finance

Answer & Explanation Solved by verified expert

Get Answers to Unlimited Questions

Membership Benefits:

Transcribed Image Text

Other questions asked by students