Question

Procter and Gamble​ (PG) paid an annual dividend of $ 1.71 in 2009. You expect PG...

Procter and Gamble​ (PG) paid an annual dividend of $ 1.71 in 2009. You expect PG to increase its dividends by 7.5 % per year for the next five years​ (through 2014), and thereafter by 2.6 % per year. If the appropriate equity cost of capital for Procter and Gamble is 7.2 % per​ year, use the​ dividend-discount model to estimate its value per share at the end of 2009.

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Answer #1
Dividend
2010 1.71+7.50% 1.84
2011 1.84+7.50% 1.98
2012 1.98+7.5% 2.12
2013 2.12+7.50% 2.28
2014 2.28+7.50% 2.45
2015 2.45+2.6% 2.52
Horizon value in 2014 = 2.52 / (7.2-2.60) % = 54.78
Stock price:
Year Cashflows PVF at 7.2% Present value
2010 1.84 0.932836 1.716418
2011 1.98 0.870183 1.722962
2012 2.12 0.811738 1.720884
2013 2.28 0.757218 1.726457
2014 2.45 0.70636 1.730582
2014 54.78 0.658918 36.09552
Stock price: 44.71
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