Question
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.
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Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
5th Edition
0135811600, 978-0135811603
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