Problem 7-21 Question Help s t has 10 milion shares, an equity cost of capital 1

Question

Problem 7-21 Question Help s t has 10 milion shares, an equity cost of capital 11%, and s expected to pay a total d vidend of S25 million each year f re e lt announces a n that i illincrease its payout to shareholders. Instead of increasing its dividend, t will lee it constant and will start repurchasing $15 millio of stock each year as well. How much will its stock price increase? The stock price will incre ee by (Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer rele Clear All Check Answor

Explanation / Answer

Solution:- PV = (future total dividends and repurchases)/r
= (25+15)/0.11
= 363.6363

P0 = 363.6363/10 = 36.3636 = $36.63

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