Question

Because of the weak economy, Nakatomi Trading Corp. has suspended stock repurchases for the current year. Nakatomi makes its payouts annually at the end of each year. Today is the first day of a new year. Nakatomi has announced that it will pay dividends of $1.045 billion (in aggregate) at the end of the current year. Next year Nakatomi will hold dividends constant and it will resume stock repurchases. It plans to spend $4.045 billion repurchasing shares. In the years following, analysts expect payouts to grow in perpetuity at 3% per annum. Stockholders require a return of 10% and there are 1.03 billion shares outstanding. What is the fair price for Nakatomi's shares today?

a)$63.25

b)$65.10

c)$60.52

d)$64.10