Shatin Intl. has 9.69.6 million shares, an equity cost of capital of 12.5 %12.5% and is...
Shatin Intl. has 9.69.6 million shares, an equity cost of capital of 12.5 %12.5% and is expected to pay a total dividend of $ 19.2$19.2 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $ 10.1$10.1 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?
Homework Answers
Before announcement Price = (19.2/9.6)/.125= 16
After announcement price = (( 19.2 + 10.1)/9.6)/.125= 24.417
So due to additional cash in hand of investors, the price is expected to go up
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