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Shatin Intl. has 9.79 million​ shares, an equity cost of capital of 13.2% and is expected to pay a total dividend of $19...

Shatin Intl. has 9.79 million​ shares, an equity cost of capital of 13.2% and is expected to pay a total dividend of $19.7 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 $10.3 million of stock each year as well. What is your estimate of​ Shatin's stock price after this​ announcement?

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Answer #1

Total payout each year = Dividends paid + Shares repurchased
= $19.7 million + $10.3 million
= $30 million

Current Value of the company = Annual payouts/Cost of capital
= $30 million / 0.132
= 227.27 million

Stock price = Current value of company/Number of shares outstanding
= $227.27 million / 9.79 million
= $23.21 per share

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