View the step-by-step solution to:

# PROBLEM p&amp;g will pay an annual dividend of 0.65\$ one year from now. analyst expect this dividend to grow at 12% per year thereafter until year 5...

PROBLEM p&g will pay an annual dividend of 0.65\$ one year from now. analyst expect this dividend to grow at 12% per year thereafter until year 5 . after then growth will level of 2% per year . According to the dividend discount model what is the value of the share if the firm equity cost of capital is 8% ?

My solution ( which is wrong and i ask you why )

make pv = div 1/(1+re)^1 , div2/(1+re)^2 ... until year 5 then at year 5 div5*(1+g)/(r-g)

sum all these periods to get the NPV = share price

0.65/(1+12%)^1+0.65/(1+12%)^2+.....+0.65*(1+2%)/(8%-2%)

= npv

where is the mistake? Thank you !

The value of a share is the... View the full answer

The way to answer this question is ... View the full answer

Dividend Growth Model: It is one of the methods used for the valuation of stock price of a company on the... View the full answer

Great question... View the full answer

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents