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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 ....

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 !

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Great question... View the full answer

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