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Procter and Gamble​ (PG) paid an annual dividend of $ 1.76 in 2009. You expect PG...

Procter and Gamble​ (PG) paid an annual dividend of $ 1.76 in 2009. You expect PG to increase its dividends by 7.7 % per year for the next five years​ (through 2014), and thereafter by 2.9 % per year. If the appropriate equity cost of capital for Procter and Gamble is 7.5 % per​ year, use the​ dividend-discount model to estimate its value per share at the end of 2009.

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Answer #1

Year 1 dividend = 1.76 (1 + 7.7%) = 1.89552

Year 2 dividend = 1.89552 (1 + 7.7%) = 2.041475

Year 3 dividend = 2.041475 (1 + 7.7%) = 2.198669

Year 4 dividend = 2.198669 (1 + 7.7%) = 2.367966

Year 5 dividend = 2.367966 (1 + 7.7%) = 2.550299

Year 6 dividend = 2.550299 (1 + 2.9%) = 2.624258

Value at year 5 = D6 / required rate - growth rate

Value at year 5 = 2.624258 / 0.075 - 0.029

Value at year 5 = 2.624258 / 0.046

Value at year 5 = 57.049087

Value per share = 1.89552 / (1 + 0.075)^1 + 2.041475 / (1 + 0.075)^2 + 2.198669 / (1 + 0.075)^3 + 2.367966 / (1 + 0.075)^4 + 2.550299 / (1 + 0.075)^5 + 57.049087 / (1 + 0.075)^5

Value per share = $48.59

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