Procter and Gamble (PG) paid an annual dividend of $ 1.73 in 2009. You expect PG to increase its dividends by 8.8 % per year for the next five years (through 2014), and thereafter by 3.4 % per year. If the appropriate equity cost of capital for Procter and Gamble is 8.5 % per year, use the dividend-discount model to estimate its value per share at the end of 2009.
The Price per share is $
Year 1 dividend = 1.73 * 1.088 = 1.88224
Year 2 dividend = 1.88224 * 1.088 = 2.047877
Year 3 dividend = 2.047877 * 1.088 = 2.22809
Year 4 dividend = 2.22809 * 1.088 = 2.424162
Year 5 dividend = 2.424162 * 1.088 = 2.637489
Year 6 dividend = 2.637489 * 1.034 = 2.727163
Present value at year 5 = D1 / k - g
Present value at year 5 = 2.727163 / 0.085 - 0.034
Present value at year 5 = 53.473784
Price per share = 1.88224 / ( 1 + 0.085)1 + 2.047877 / ( 1 + 0.085)2 + 2.22809 / ( 1 + 0.085)3 + 2.424162 / ( 1 + 0.085)4 + 2.637489 / ( 1 + 0.085)5 + 53.473784 / ( 1 + 0.085)5
Price per share = $44.28
Get Answers For Free
Most questions answered within 1 hours.