Question

Maynard Steel plans to pay a dividend of $3.00 this year. The company has an expected earnings growth rate of 4.0% per year and an equity cost of capital of 10.0%. a. Assuming Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $1.00 this year and use the remaining $2.00 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. c. If Maynard maintains the dividend and total payout rate in (b), at what rate are Maynard's dividends and earnings per share expected to grow? a. Assuming Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. Maynard's share price will be $ . (Round to the nearest cent.)

Answer 1

Solution'. Dividend to be paid in this year (D) = $3.00 Expected Earning Growth Rote (9) = 4.0% or 0.04 Equity lost of capital = 10% or oilo (9) Calculate Maynard's share Price. . dividend Discount Model $ 3,00 0.10-004 = $ 3.00 0.06 = $50 So, the price of share of Maynard Steel is $50. 6 Suppose Maynard decide to pay dividend $1.00 this year and the remaining $2.00 per Share to repurchase shars. Maynard's

Payout timaines lorstant, lalulet Maynard's اللہ ۲۹۶م As = Payout Model per = P = Dividend and share Purchase e-g = $1.00 +$ a co 0.10 - 0.04 $3.00 0.06 : $50 So, the price of the share remain same , as it was calculated in part (a) because the payout remains constant and that is split in two parts that is dividends and for share purchase. o calculate 48owth rate for Maynard's dividend and earnings if Maynard maintains the dividend and total payout rate in (b).

Growth Rate = lost of capital - Dividend Vield the price Dividend Vield is calculated by dividing amount of dividend in part (b) by the of the share Dividend Vield - Dividend fi 050 Poice of those = 0.02 Growth Rate = cost of capital - Dividend Vield 0.10 -0.02 = 0.08 00 8.). So, the dividend and earning per share are expected to grow at 8 % .