Gillette has announced that it will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter through the fifth year. After the fifth year, growth will level off at 2% per year. Applying the dividend discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 8%?
The solution examines the dividend discount model to determine the value of Gillette Stock.