You have 1000 shares outstanding, with a stock price of $120. The cost of capital is 20%.
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Question:
You have 1000 shares outstanding, with a stock price of $120. The cost of capital is 20%. Your company is expected to pay dividends of $20/share each year, including this year. You announce that this year, the company will distribute half the cash in form of repurchases. Investors who sell their shares will not get dividends.
1) At what price will you repurchase shares?
2) What is the cash dividend per share?
3) What is the PV of all future dividends for investors who keep their shares?
4) Suppose you repurchase shares at $100. What happens to the value of new and old shareholders?
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