Procter and Gamble (PG) has a June fiscal year-end. On June 30, 2006, analysts expected the company to pay $1.38 dividends per share in fiscal year 2007. The company's market beta is estimated to be 0.7. Assume that the risk-free rate is 5.4% and the market premium is 5%. During fiscal year 2006, the company's sales growth was 20.2%. However, analysis reveals that P&G's fiscal 2006 sales include eight months of sales from Gillette after its acquisition by P&G during 2006. Footnotes report pro forma sales that show what the income statement would have reported had Gillette's full-year sales been included in both 2005 and 2006specifically, P&G's sales growth would have been 4.4%.

(b) Using your rounded answer from (a), estimate P&G's intrinsic value using the DDM model assuming that dividends per share are projected at $1.38 per share after 2007. (Hint: Apply the DDM model with constant perpetuity.) (Round your answer to two decimal places.)

(e) On June 30, 2006, the stock of P&G was priced at $55.60 per share. Infer the market expectation about the future growth rate of P&Gs dividend using the DDM model with an increasing perpetuity and the rounded cost of equity capital computed in (a). (Do not round until your final answer. Round your answer to one decimal place.)