Answer Happy

Exercise 2 (30 points): Procter & Gamble will pay an annual dividend of $2 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. What is the value of a share of Procter & Gamble stock if the firm's equity cost of capital is 10%? Exercise 3 (20 points): (a&b 10 points each): Now is Year OiDoc, a health service company, just paid a dividend of $1.50. You expect iDoc to increase its dividends by 10% per year for the next two years through Year 2), and thereafter by 3% per year. The appropriate annual discount rate equity cost of capital) for iDoc is 8%. (a) Use the Gordon Growth model to estimate the share price of Doc right W. Le in Your O. (b) What is the expected share price of iDoc in Your 1?