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Question - Assume Gillette Corporation will pay an annual dividend of $0.65 one year from now (i.e, dividend 1). Analysts expect this dividend to grow at 12% per year thereafter until the third year. After then (i.e. starting in year 4), growth will level off at 2% per year forever. According to the dividend discount model:
a. What is the value of a share of Gillette Stock today (i.e. Po) if the firm's equity cost of capital (i e, required return) is 8%?
b. Suppose instead that you plan to hold the stock for four years. What is the value of a share of Gillette Stock today (le Po) if you plan to sell the stock in four years (i.e. you will sell the stock in year 4 immediately after it makes its fourth dividend payment)?
C. For what price would you expect to be able to sell a share of Gillette stock in four years just after dividend 4 is paid (ie, P4)?
General formatting requirements: Please construct visually attractive and easily readable worksheets. Round your calculated percentages to the nearest one tenth of one percent (e.g., 100.0%; 65.2%; 4.3%, etc).
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