he Question 5 (Firm and Equity Valuation) You are trying to value the stock of ABC Inc. You know that the company has a cost of equity () of 10% and has 1,000 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. The company will continue to pay dividends and/or repurchase shares in perpetuity. While the company may switch between dividends and repurchases over time you expect it to maintain a constant payout ratio of 40% of earnings in perpetuity You estimate that the company has a return on new investment of 11% and that al future earnings growth after three years will come from retained earnings Year Total Caning $12.000 13.000 $13.500 Total Dividenden $1.000 $1,6 Total Repurchases in San $3,500 $3,200 $2,900 Part As Points) Given the information provided, what model would you use to estimate ABC's stock price? A DOM, a Total Payout Model, or a Discounted Free Cash Flow model? Part 1 (5 Points) Provide an estimate for the long-term powth rate of payouts to shareholders after three years) Show your calculations ha V Part C (10 Points) Regardless of your answer in part (B), assume that the long-term growth rate is 5% (after three years). Estimate the share price for ABC Inc. Show your work he Question 5 (Firm and Equity Valuation) You are trying to value the stock of ABC Inc. You know that the company has a cost of equity () of 10% and has 1,000 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. The company will continue to pay dividends and/or repurchase shares in perpetuity. While the company may switch between dividends and repurchases over time you expect it to maintain a constant payout ratio of 40% of earnings in perpetuity You estimate that the company has a return on new investment of 11% and that al future earnings growth after three years will come from retained earnings Year Total Caning $12.000 13.000 $13.500 Total Dividenden $1.000 $1,6 Total Repurchases in San $3,500 $3,200 $2,900 Part As Points) Given the information provided, what model would you use to estimate ABC's stock price? A DOM, a Total Payout Model, or a Discounted Free Cash Flow model? Part 1 (5 Points) Provide an estimate for the long-term powth rate of payouts to shareholders after three years) Show your calculations ha V Part C (10 Points) Regardless of your answer in part (B), assume that the long-term growth rate is 5% (after three years). Estimate the share price for ABC Inc. Show your work