Gillette's most recent annual dividend was $8 per share. The company expects the growth of its...
| 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) | |||||
| Hint: When the constant-growth formula is solved for the growth variable, it is g = -D/P + r | |||||
Homework Answers
a. Price = Div1/(r - g)
Div1 = 8 * (1 + 0.03)
Div1 = 8.24
Price = 8.24/(0.09 - 0.03)
Price = $137.3333333333
b. Price = Div1/(r - g)
r - g = Div1/Price
g = r - Div1/Price
g = 0.09 - 8.24/116.57
g = 0.01931285923
g ~ 2%
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