Question

ABC Co. has 165 million shares outstanding and expects earnings at the end of this year of $2.05 billion. ABC plans to pay out 40% of its earnings in total, paying 25% as a dividend and using 15% to repurchase shares. If ABC’s earnings are expected to grow by 9.2% per year and these payout rates remain constant, determine ABC’s share price assuming equity cost of capital 15%.

Answer 1

Answer:

Share price = $85.684

Explanation:

It is given that  ,Ke = cost of equity = 15% ,g = Growth = 9.2%%  and Dividend and Repurchase = 40%

Now we know that

PV = CF /(Ke- g)

PV = $2.05 billion*0.4 / (0.15-0.092) = 0.84 billion /0.058

=$14137931034.483

Share price = $14137931034.483 / 165000000 million

Share price = $85.684