Problem $15-16$ Repurchases and the DCF model

Surf & Turf Hotels is a mature business, although it pays no cash dividends. Next year's earnings are forecasted at $$82$ million. There

are $10$ million outstanding shares. The company has traditionally paid out $50\%$ of earnings by repurchases and reinvested the

remaining earnings. With reinvestment, the company has generated steady growth averaging $5\%$ per year. Assume the cost of equity

is $10\%.$

a$.$ Calculate Surf & Turf $\text{'}$s current stock price, using the constant$-$growth DCF model. $($Hint$.$ Take the easy route and estimate overall

market capitalization.$)$

b$.$ Now Surf & Turf's CFO announces a switch from repurchases to a regular cash dividend. Next year's dividend will be $$4\mathrm{.}10$ per

share. The CFO reassures investors that the company will continue to pay out $50\%$ of earnings and reinvest $50\%.$ All future

payouts will come as dividends, however. What would be Surf & Turf $\text{'}$s stock price?

Note: For all requirement, do not round intermediate calculations. Round your answers to $2$ decimal places.

$($IMPORTANT

Answer A is not $0$ or $86\mathrm{.}1$ and Answer B is not $61\mathrm{.}50$ or $86\mathrm{.}10)$