A firm's board of directors has authorized stock repurchases of $10 million one year from now and $15 million two years from now. Three years from now, the firm will discontinue share repurchases. Instead, the firm will pay dividends totaling $20 million three years from now. Beginning in the fourth year, dividends are expected to grow at a rate of 2% forever. There are 7 million common shares outstanding and the equity cost of capital is 7.8 percent. What is each share of stock worth today?
A firm's board of directors has authorized stock repurchases of $10 million one year from now and $15 million two years from now. Three years from now, the firm will discontinue share repurchases. Instead, the firm will pay dividends totaling $20 million three years from now. Beginning in the fourth year, dividends are expected to grow at a rate of 2% forever. There are 7 million common shares outstanding and the equity cost of capital is 7.8 percent. What is each share of stock worth today?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 9P
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A firm's board of directors has authorized stock repurchases of $10 million one year from now and $15 million two years from now. Three years from now, the firm will discontinue share repurchases. Instead, the firm will pay dividends totaling $20 million three years from now. Beginning in the fourth year, dividends are expected to grow at a rate of 2% forever. There are 7 million common shares outstanding and the equity cost of capital is 7.8 percent. What is each share of stock worth today?
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