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Nisocom Industries is planning to distribute a dividend of $3 per share this year. It has an equity cost of capital of 10 percent. Moreover,
Nisocom Industries is planning to distribute a dividend of $3 per share this year. It has an equity cost of capital of 10 percent. Moreover, its earnings are expected to grow at an annual rate of 4 percent.
Required:
- What is the share price of Nisocom industries if it is assumed that the company has a constant expected growth rate and dividend payout rate and that it does not repurchase or issue shares? (2 Marks)
- If we assume that it pays $1 as a dividend this year and utilize the remaining $2 per share for the share buyback, then what is the share price of the company keeping the total payout rate constant? (2 Marks)
- Next, calculate the expected growth rates of earnings and dividends per share if the company maintains the total payout and dividend rate calculated in part b. (2 Marks)
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