Chittenden Enterprises has 600 million shares outstanding. It expects earnings at the end of the year to be $ 970 million. The

Question

3 years ago

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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?

Business

1 answer:

Vilka [71] · Answer 1 · 2022-03-19T21:55:41+03:00

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

Chittenden Enterprises has 600 million shares outstanding. It expects earnings at the end of the year to be $ 970 million. The​

Chittenden Enterprises has 600 million shares outstanding. It expects earnings at the end of the year to be $ 970 million. The