Question

Shatin Intl. has million​ shares, an equity cost of capital of and is expected to pay a total dividend of million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its​ dividend, it will keep it constant and will start repurchasing million of stock each year as well. What is your estimate of​ Shatin's stock price after this​ announcement?

Answer 1

$24.7596

Step-by-step explanation:

Calculation to determine What is your estimate of​ Shatin's stock price after this​ announcement

First step is to calculate the Present value (PV) using this formula

Present Value = (Dividend + Repurchases/R)

Let plug in the formula

Present Value= ($21 m + $9.9m)/0.13

Present Value= $237,692,307.6923077

Now let calculate the stock price using this formula

Stock Price = Present Value/Shares Outstanding

Let plug in the formula

Present Value= 237,692,307.6923077/9,600,000

Present Value= $24.7596

Therefore your estimate of​ Shatin's stock price after this​ announcement will be $24.7596