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

Question

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] · Answer 1 · 2022-04-13T10:24:26+03:00

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