Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

EFL Ltd has 5000 shares outstanding, and the current stock price is Rs.200. The company is expected to pay a dividend of Rs.20 per share

  • EFL Ltd has 5000 shares outstanding, and the current stock price is Rs.200. The company is expected to pay a dividend of Rs.20 per share next year and therafter the dividend is expected to grow indefinitely by 5% a year. The CEO now makes a surporise announcement: He says that the company will henceforth distribute half the cash in the form of dividends and the remainder will be used to repurchase the stock. The purchased stock will not be entitled to the dividend.

  • 1) What is the total value of the company before and after the announcement? What is the value of one share? 

  • 2) What is the expected stream of dividends per shar for an investor who plans to retain his shares rather than sell them back to the company? check the estimate of share value by discounting this stream of dividends per share.



Step by Step Solution

There are 3 Steps involved in it

Step: 1

EFL Ltd Share Value Analysis 1 Value of the company before and after the announcement Current market ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Corporate Finance

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

5th Edition

0135811600, 978-0135811603

More Books

Students also viewed these Finance questions