Sultan Services has million shares outstanding. It expects earnings at the end of the year of million. Sultan pays out 60% of i

Question

3 years ago

14

Sultan Services has million shares outstanding. It expects earnings at the end of the year of million. Sultan pays out 60% of i

ts earnings in total - 40% paid out as dividends and 20% used to repurchase shares. If Sultan's earnings are expected to grow by % per year, these payout rates do not change, and Sultan's equity cost of capital is %, what is Sultan's share price?

Business

1 answer:

sukhopar [10] · Answer 1 · 2022-02-20T19:23:20+03:00

Answer: $73.33

Explanation:

Dividend discount model can be used to calculate the value of the shares:

= Earnings paid out / (Cost of equity - growth rate)

Earnings to be paid out:

= 60% * 5,500,000

= $3,300,000

Value of shares:

= 3,300,000 / ( 9% - 6%)

= $110,000,000

Share price:

= Value of shares / Number of shares outstanding

= 110,000,000 / 1,500,000

= $73.33

Sultan Services has million shares outstanding. It expects earnings at the end of the year of million. Sultan pays out​ 60% of i

Sultan Services has million shares outstanding. It expects earnings at the end of the year of million. Sultan pays out 60% of i