The current price of its stock

CX Enterprises has the following expected dividends: $1 in one year, $1.15 in two years, and $1.25 in three years. After that, its dividends are expected to grow at 4% per year forever (so that year four’s dividend will be 4% more than $1.25 and so on).

If CX’s equity cost of capital is 12%, what is the current price of its stock?

Colgate-Palmolive Company has just paid an annual dividend of $0.96. Analysts are predicting an 11% per year growth rate in earnings over the next five years. After that, Colgate’s earnings are expected to grow at the current industry average of 5.2% per year. If Colgate’s equity cost of capital is 8.5% per year and its dividend payout ratio remains constant, for what price does the DDM predict Colgate stock should sell?

Solution:

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