Question 4 - Stock Valuation using Total Payout Model You are trying to value the stock of ABC Inc. You know that the company has a cost of equity of 12% and has 500 million shares outstanding today. You have estimated the total earnings of ABC for the next three years, as well as the total dollar amounts of cash returned to shareholders through dividends and share repurchases (see table below). You anticipate that the company will reach its maturity stage after three years. You know that the company will not conduct any further share repurchases after three years but that it will continue to pay dividends, and maintain a stable payout ratio of 50% of earnings from year three onwards in perpetuity. You estimate that the company has a return on new investment of 12.5%, and that all future earnings growth after three years comes from retained earnings. What price would you estimate for ABC's stock today? Show your work by completing a table similar to the one below. $15,000 $750 $4,500 $17,000 $2,550 $4,250 $19,000 $7,600 $1,900 Year Total Earnings (in Smn) Total Dividends (in $mn) Total Repurchases (in Smn) Long-term growth rate (g) (after year 3) Total Payout (in $mn) V:(Equity) (Terminal Value) (in $mn) Present Value (in $mn) Vo(Equity) (in Smn) Share Price Po Question 4 - Stock Valuation using Total Payout Model You are trying to value the stock of ABC Inc. You know that the company has a cost of equity of 12% and has 500 million shares outstanding today. You have estimated the total earnings of ABC for the next three years, as well as the total dollar amounts of cash returned to shareholders through dividends and share repurchases (see table below). You anticipate that the company will reach its maturity stage after three years. You know that the company will not conduct any further share repurchases after three years but that it will continue to pay dividends, and maintain a stable payout ratio of 50% of earnings from year three onwards in perpetuity. You estimate that the company has a return on new investment of 12.5%, and that all future earnings growth after three years comes from retained earnings. What price would you estimate for ABC's stock today? Show your work by completing a table similar to the one below. $15,000 $750 $4,500 $17,000 $2,550 $4,250 $19,000 $7,600 $1,900 Year Total Earnings (in Smn) Total Dividends (in $mn) Total Repurchases (in Smn) Long-term growth rate (g) (after year 3) Total Payout (in $mn) V:(Equity) (Terminal Value) (in $mn) Present Value (in $mn) Vo(Equity) (in Smn) Share Price Po