Question

Zoom Enterprises expects that one year from now it will pay a total dividend of $ 5.0 million and repurchase $ 5.0 million worth of shares. It plans to spend $ 10.0 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 13.0 % and it has 5.0 million shares​ outstanding, what is its share price​ today?

Answer 1

Consider the following calculations

Step-by-step explanation:

The price per share is computed as shown below:

Present value of equity is computed as follows:

= $ 10 million / 0.13

= $76,923,076.92

Now we shall divide it by the number of shares to get the price per share

= $76,923,076.92 / 5,000,000

= $ 15.38 per share

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