Suppose Compco Systems pays no dividends but spent $ 5.18 billion on share repurchases last year. If Compco's equity cost of capital is 11.5 % , and if the amount spent on repurchases is expected to grow by 7.9 % per year, estimate Compco's market capitalization. If Compco has 5.8 billion shares outstanding, to what stock price does this correspond? Compco's market capitalization will be $ nothing billion. (Round to two decimal places.) Compco's stock price will be $ nothing. (Round to the nearest cent.)

Question

Queen Bee

Business

29 March, 14:38

Suppose Compco Systems pays no dividends but spent $ 5.18 billion on share repurchases last year. If Compco's equity cost of capital is 11.5 % , and if the amount spent on repurchases is expected to grow by 7.9 % per year, estimate Compco's market capitalization. If Compco has 5.8 billion shares outstanding, to what stock price does this correspond? Compco's market capitalization will be $ nothing billion. (Round to two decimal places.) Compco's stock price will be $ nothing. (Round to the nearest cent.)

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Clark Sloan · Answer 1

Market capitalization - $155.26

Stock price - $26.77

Explanation:

The computation of the market capitalization is shown below:

= last year dividend * (1 + growth rate) : (cost of capital - growth rate)

= $5.18 billion * (1 + 7.9%) : (11.5% - 7.9%)

= $5.58,922 billion : 3.6%

= $155.26

And, the stock price would be

= Market capitalization : outstanding shares

= $155.26 : 5.8 billion

= $26.77