Assume there are perfect market conditions. ABC co has 20 million shares outstanding and faces a cost of equity of 10%. It wants to pay out $X in excess cash as a dividend today. If ABC instead uses $X to repurchase its stock, the post-repurchase stock price would have been $50. ABC is debtless. 

It expects to generate free cashflows of $40 million next year, growing at 2% thereafter. ABC pays out all FCFs are dividends. What is X?

Answer rating: 100% (QA)

To calculate the value of X we can use the dividend discount model which states that the present val... View the full answer