Question:
Colgate-Palmolive Company has just paid an annual dividend of $0.95. Analysts are predicting a 10.1% 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 6.3% per year.
If Colgate’s equity cost of capital is 8.7% per year and its dividend payout ratio remains constant, what price does the dividend-discount model predict Colgate stock should sell for?
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