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?

Question

Reyna Mccall

Business

5 February, 12:01

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?

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Answers (1)

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Erica · Answer 1

Consider the following calculations

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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