The amount of $97.85 is the price that dividend-discount model predict that Colgate stock should sell for today
<u>Given Information</u>
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        <u>1.686828295</u>
Present value of Dividends                   <u>8.3707</u>
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.
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