An analyst is reviewing the valuation of DuPont (NYSE: DD) as of the beginning of July 2013 when DD is selling for \($52.72\) . In the previous year, DuPont paid a \($1.70\)  dividend that the analyst expects to grow at a rate of 4 percent annually for the next four years. At the end of Year 4, the analyst expects the dividend to equal 35 percent of earnings per share and the trailing P/E for DD to be 13. If the required return on DD common stock is 9.0 percent, calculate the per-share value of DD common stock.

Exhibit 6 summarizes the relevant calculations. When the dividends are growing at 4 percent, the expected dividends and the present value of each (discounted at 9.0 percent) are shown. The terminal stock price, V₄, deserves some explanation. As shown in the table, the Year 4 dividend is 1.70(1.04)4 = 1.9888. Because dividends at that time are assumed to be 35 percent of earnings, the EPS projection for Year 4 is EPS₄ = D₄/0.35 = 1.9888/0.35 = 5.6822. With a trailing P/E of 13.0, the value of DD at the end of Year 4 should be 13.0(5.6822) = \($73.8682\). Discounted at 9 percent for four years, the present value of V₄ is \($52.3301\).

The present values of the dividends for Years 1 through 4 sum to \($6.06\). The present value of the terminal value of \($73.87\)  is \($52.33\) . The estimated total value of DD is the sum of these, or \($58.39\)  per share.

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EXHIBIT 6 Value of DuPont Common Stock Present Values DJ (1.09) or V/(1.09)* Time Value Calculation D, or V 1 Di $1.70(1.04) $1.7680 $1.6220 2 D 1.70(1.04) 1.8387 1.5476 3 D3 1.70(1.04) 1.9123 1.4766 4 DA 1.70(1.04)4 1.9888 1.4089 4 V 13x [1.70(1.04)4/0.35] 73.8682 52.3301 = 13 x [1.9888/0.35] = 13 x 5.6822 Total $58.3852