Assume Gillette Corporation will pay an annual dividend of $0.68 one year from now. Analysts expect this dividend to grow at 12.8% per year thereafter until the 6th year. Thereafter, growth will level off at 1.9% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.9%? The value of Gillette's stock is $5.2 (Round to the nearest cent.)

Assume Gillette Corporation will pay an annual dividend of $0.68 one year from now. Analysts expect this dividend to grow at 12.8% per year thereafter until the 6th year. Thereafter, growth will level off at 1.9% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8.9%? The value of Gillette's stock is $5.2 (Round to the nearest cent.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume Highline Company has just paid an annual dividend of $1.05. Analysts are predicting an 10.5% per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 5.1% per year. If Highline's equity cost of capital is 7.6% per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell? The value of Highline's stock is $ (Round to the nearest cent.)
assume evco, inc., has a current stock price of $59 and will pay a $1.75 dividend in one year; its equity cost of capital is 13%. what price must you expect evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? the expected price is $ (round to the nearest cent.)
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Assume Gillette Corporation will pay an annual dividend of $0.63 one year from now. Analysts expect this dividend to grow at 12.6% per year thereafter until the 6th year. Thereafter, growth will level off at 1.6% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 7.7%? The value of Gillette's stock is $ (Round to the nearest cent.)
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