Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in 2009. You expect PG...

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Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in2009. You expect PG to increase its dividends by 7.3 % per year forthe next five years? (through 2014), and thereafter by 3.2 % peryear. If the appropriate equity cost of capital for Procter andGamble is 7.2 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.
a.) What is the price per share?
Please show all work!

Answer & Explanation Solved by verified expert

3.9 Ratings (714 Votes)

	Required rate=	7.20%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	1.68	7.30%	1.80264		1.80264	1.072	1.6816
2	1.80264	7.30%	1.93423272		1.93423272	1.149184	1.68314
3	1.93423272	7.30%	2.075431709		2.075431709	1.231925248	1.68471
4	2.075431709	7.30%	2.226938223		2.226938223	1.320623866	1.69
5	2.226938223	7.30%	2.389504714	61.649	64.03850471	1.415708784	45.23
	Long term growth rate (given)=	3.20%			Value of Stock =	Sum of discounted value =	51.97

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

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Procter and Gamble? (PG) paid an annual dividend of $ 1.68 in2009. You expect PG to increase its dividends by 7.3 % per year forthe next five years? (through 2014), and thereafter by 3.2 % peryear. If the appropriate equity cost of capital for Procter andGamble is 7.2 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.a.) What is the price per share?**Please show all work!**