Question

Zoom Enterprises expects that one year from now it will pay a total dividend of $5.2 million and repurchase $5.2 million worth of shares. It plans to spend $10.4 million on dividends and repurchases every year after that​ forever, although it may not always be an even split between dividends and repurchases. If​ Zoom's equity cost of capital is 13.1% and it has 5.1 million shares​ outstanding, what is its share price​ today?

Answer 1

The share price today is $15.57

Step-by-step explanation:

Value of the firm = Cash Flow / Cost of Equity

Value of the firm= $10,400,000 / 13.1%

Value of the firm= $79,389,312.98

If​ Zoom's equity cost of capital is 13.1% and it has 5.1 million shares​ outstanding, what is its share price​ today

Share price​ today = $79,389,312.98 / 5,100,000 Shares

Share price​ today = $15.5665

Share price​ today = $15.57

The share price today is $15.57