Gillette's most recent annual dividend was $8 per share. The company expects the growth of its dividends to be stable at 3% per year going forward.a) If investors require a 9% return, what is the current value of Gillette's stock? (round to nearest cent)b) If the stock currently trades at $116.57 per share, what is the dividend growth rate investors expect? (round to nearest percent)Answer in Excel.

Question
Asked Oct 8, 2019

Gillette's most recent annual dividend was $8 per share. The company expects the growth of its dividends to be stable at 3% per year going forward.

a) If investors require a 9% return, what is the current value of Gillette's stock? (round to nearest cent)

b) If the stock currently trades at $116.57 per share, what is the dividend growth rate investors expect? (round to nearest percent)

Answer in Excel.

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Expert Answer

Step 1

Part A& B:

Calculation of Current Value of Stock and Dividend Growth Rate:

Excel Spreadsheet:

A
1Annual Dividends
$8
2 Growth Rate
3%
3 Required Return
4 Expected Dividends
5 Current Value of Stock
9%
$116.57
$137.33
2%
6
Dividend Growth Rate
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A 1Annual Dividends $8 2 Growth Rate 3% 3 Required Return 4 Expected Dividends 5 Current Value of Stock 9% $116.57 $137.33 2% 6 Dividend Growth Rate

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Step 2

Excel Workings

...
A
1 Anmual Dividends
0.03
2 Growth Rate
3 Required Return
4 Expected Dividends
5 Current Value of Stock=(B1*(1+B2))/(B3-B2)
6 Dividend Growth Rate=((B4*B3)-B1)/(B1+B4)
0.09
116.57
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Image Transcriptionclose

A 1 Anmual Dividends 0.03 2 Growth Rate 3 Required Return 4 Expected Dividends 5 Current Value of Stock=(B1*(1+B2))/(B3-B2) 6 Dividend Growth Rate=((B4*B3)-B1)/(B1+B4) 0.09 116.57

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