Suppose Compco Systems pays no dividends but spent $4.92 billion on share repurchases last year. If...
Suppose Compco Systems pays no dividends but spent $4.92 billion on share repurchases last year. If Compco's equity cost of capital is 12.8%, and if the amount spent on repurchases is expected to grow by 8.4% per year, estimate Compco's market capitalization. If Compco has 6.6 billion shares outstanding, to what stock price does this correspond?Compco's market capitalization will be? billion. (Round to two decimal places.)
Please show steps to reach final answer.
Homework Answers
a). Total Payout = Payout Last Year * (1 + g) = $4.92 billion * (1 + 0.084) = $5.33 billion
Market Capitalization = Total Payout / [r(E) - g] = $5.33 billion / (0.128 - 0.084)
= $5.33 billion / 0.044 = $121.21 billion
b). P(0) = Market Capitalization / Number of Shares = $121.21 billion / 6.6 billion shares = $18.37
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