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Procter and Gamble? (PG) paid an annual dividend of $2
Procter and Gamble? (PG) paid an annual dividend of $2.94 in 2018. You expect PG to increase its dividends by 8.1% per year for the next five years? (through 2023), and thereafter by 2.6% per year. If the appropriate equity cost of capital for Procter and Gamble is 8.2% per? year, use the? dividend-discount model to estimate its value per share at the end of 2018.
The price per share is???? Please show work.
Expert Solution
The value of the stock is computed as shown below:
= Dividend in year 1 / (1 + required rate of return)1 + Dividend in year 2 / (1 + required rate of return)2 + Dividend in year 3 / (1 + required rate of return)3 + Dividend in year 4 / (1 + required rate of return)4 + Dividend in year 5 / (1 + required rate of return)5 + 1 / (1 + required rate of return)5 [ ( Dividend in year 5 (1 + growth rate) / ( required rate of return - growth rate) ]
= ($ 2.94 x 1.081) / 1.082 + ($ 2.94 x 1.0812) / 1.0822 + ($ 2.94 x 1.0813) / 1.0823 + ($ 2.94 x 1.0814) / 1.0824 + ($ 2.94 x 1.0815) / 1.0825 + 1 / 1.0825 x [ ( $ 2.94 x 1.0815 x 1.026) / (0.082 - 0.026) ]
= $ 3.17814 / 1.082 + $ 3.43556934 / 1.0822 + $ 3.713850457 / 1.0823 + $ 4.014672344 / 1.0824 + $ 4.339860803 / 1.0825 + $ 79.51244972 / 1.0825
= $ 3.17814 / 1.082 + $ 3.43556934 / 1.0822 + $ 3.713850457 / 1.0823 + $ 4.014672344 / 1.0824 + $ 83.85231052 / 1.0825
= $ 68.28
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