The amount of $97.85 is the price that dividend-discount model predict that Colgate stock should sell for today
Given Information
Current dividend (D0) = $1.59
Dividend payments for next five years includes:
D1 = 1.59 +0.18
D1 = 1.77
D2 = 1.77 +0.18
D2 = 1.95
D3 = 1.95 +0.18
D3 = 2.13
D4 = 2.13 +0.18
D4 =2.31
D5 = 2.31 +0.18
D5 =2.49
Year Cash Flow PVF at 8.1% Present value
1 1.77 0.92506938 1.637372803
2 1.95 0.855753358 1.668719048
3 2.13 0.791631229 1.686174517
4 2.31 0.73231381 1.691644901
5 2.49 0.677441082 1.686828295
Present value of Dividends 8.3707
PV of remaining dividends in 5 year = D5 x (1+g)/(Ke-g))
PV of remaining dividends in 5 year = 2.49(1+0.061)/(0.081-0.061)
PV of remaining dividends in 5 year = $132.0945
Given that g=6.1%, ke=8.1%
PV of remaining dividends in year = 0 = PV of the remaining dividends in year 5* 1/(1+0.081)^5
= 132.0945 * 1/(1+0.081)^5
= $89.48624
As per dividend-discount model, Colgate stock should sell for today = PV of Dividends till 5th year + PV of Remaining Dividend at t=0
= $89.48624 + $8.3707
= $97.8531
= $97.85
Hence, the amount of $97.85 is the price that dividend-discount model predict that Colgate stock should sell for today.
Read more about dividend
brainly.com/question/3161471
