Can someone please help me with problem, I can't solve this for the life of me.
Colgate-palmolive company has just paid an annual dividend of $1.06. Analyst are predicting an 10.6% per yer growth rate in earnings over the next five years. After that Colgates earnings are expected to grow at the current industry average of 6.3% per year. If Colgate's equity cost of capital is 8.5% per year and its dividend payout ratio remains constant what price does the dividend-discount model predict Colgate's stock should sell?
Two stage Dividend Discount Model.
i am not getting the correct cash flow though, i know its suppose to
X/(1+0.085)+ X/(1+0.085)^2....etc, the problem i am getting is the cash flow i don't seem to get the right amount, since i am using my financelab it says the cash flow is wrong so the answer i get is wrong..
Bump, I just need help figuring out the C.F, and from their I can solve it.
The cash flows are just ($1.06 x 1.106 = $1.17236) at T1, $1.29663 in T2, and so on... and then you just use T6 (=T5 x 1.063) with a g of 6.3% and an r of 8.5% to find the terminal value.
Total PV of $61.9852.
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