Determining the dividend discount model-procter and gamble

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Procter and Gamble paid a dividend of $8.00 per share to its common stockholders yesterday. You expect its dividend to increase by 10 percent per year for the next two years, followed by an increase of 8 percent per year for the following three years, before settling into a constant growth of 3 percent per year forever. You believe that P&G stockholders require a 12 percent rate of return and its bondholders require a 7 percent rate of return. If the market value of Procter and Gamble's bonds is $800 million and the company has 500 million shares outstanding, what should the price of its stock be based on the dividend discount model?

Reference no: EM132652827

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