Procter and Gamble? (PG) paid an annual dividend of $ 1.66 in 2009. You expect PG...

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Procter and Gamble? (PG) paid an annual dividend of $ 1.66 in2009. You expect PG to increase its dividends by 7.1 % per year forthe next five years? (through 2014), and thereafter by 2.8 % peryear. If the appropriate equity cost of capital for Procter andGamble is 8.7 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.
The price per share is______?$ (round to the nearest cent).
?

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4.4 Ratings (788 Votes)

	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

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Procter and Gamble? (PG) paid an annual dividend of $ 1.66 in2009. You expect PG to increase its dividends by 7.1 % per year forthe next five years? (through 2014), and thereafter by 2.8 % peryear. If the appropriate equity cost of capital for Procter andGamble is 8.7 % per? year, use the? dividend-discount model toestimate its value per share at the end of 2009.The price per share is______?$ (round to the nearest cent).?