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Svetllana [295]
3 years ago
7

Zoom Enterprises expects that one year from now it will pay a total dividend of $4.7 million and repurchase $4.7 million worth o

f shares. It plans to spend $9.4 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 13.3% and it has 5.3 million shares​ outstanding, what is its share price​ today?
Business
1 answer:
Ira Lisetskai [31]3 years ago
6 0

Answer:

$13.34

Explanation:

For computing the today price, first we have to determine the present value of equity which is shown below:

The Present value of equity = Spending amount on dividends and repurchases ÷ equity cost of capital

= $9.4 million ÷ 13.3%

= $70,676,691

Now the share price equals to

= Present value of equity ÷ outstanding shares

= $70,676,691 ÷ 5.3 million shares

= $13.34

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