Assume Gillette Corporation will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12.0% per year thereafter until the 5th year.​ Thereafter, growth will level off at 2.0% 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 8.0%​? The value of​ Gillette's stock is ______________ ​​(Round to the nearest​ cent.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
icon
Related questions
Question
Assume Gillette Corporation will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12.0% per year thereafter until the 5th year.​ Thereafter, growth will level off at 2.0% 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 8.0%​? The value of​ Gillette's stock is ______________
​​(Round to the nearest​ cent.)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Dividends
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage