Question

Chittenden Enterprises has 600 million shares outstanding. It expects earnings at the end of the year to be $ 970 million. The​ firm's equity cost of capital is 8​%. Chittenden pays out​ 30% of its earnings in​ total: 20% paid out as dividends and​ 10% used to repurchase shares. If​ Chittenden's earnings are expected to grow at a constant 5​% per​ year, what is​ Chittenden's share​ price?

Answer 1

Answer:

Chittenden enterprises' share price will be $16.167.

Explanation:

Chittenden Enterprises has 600 million outstanding shares.

The expected earnings at the end of the year are $970 million.

The equity cost of capital is 8%.

The constant growth rate is 5%.

Next year's dividend per share

=30%*$970 million/600 million

=$291 million/600 million

=$0.485/share

Share Price  

= Dividend next year /(Cost of Equity -Constant growth rate )

=$0.485/(8%- 5%)

=$16.167