Applying the Dividend-Discount Model
Procter & Gamble will pay an annual dividend of $.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to the dividend-discount model, what is the value of a share of procter & Gamble stock if the firm's equity cost of captial is 8%?