Question

Valence Electronics has 213 million shares outstanding. It expects earnings at the end of the year of $800 million. Valence pays out 40% of its earnings in total-15% paid out as dividends and 25% used to repurchase shares. If Valence's earnings are expected to grow by 7% per year, these payout rates do not change, and Valence's equity cost of capital is 9%, what is Valence's share price

Answer 1

$75.12 million

Explanation:

For computation of Valence's share price first we need to find out the share price which is shown below:-

Share price = (Paid earning of Valence × Ended year of expected earning) ÷ (Equity cost of capital - Expected growth rate)

= (40% × $800 million) ÷ (9% - 7%)

= (0.4 × $800 million) ÷ (0.09 - 0.07)

= $320 million ÷ 0.02

= $16,000 million

Now, Valence's share price

= Total value ÷ Outstanding total shares

= $16,000 million ÷ 213 million

= $75.12 million