Sultan Services has 1.1 million shares outstanding. It expects earnings at the end of the year of $ 5.00 million. Sultan pays out 60% of its earnings in total - 40% paid out as dividends and 20% used to repurchase shares. If Sultan's earnings are expected to grow by 7% per year, these payout rates do not change, and Sultan's equity cost of capital is 9%, what is Sultan's share price?
A. $ 81.82
B. $ 27.27
C. $ 54.54
D. $ 136.36
Expected dividend = earnings * payout ratio
= 5 * 0.6
= 3
Value of company = Expected dividend/cost of capital-growth rate
= 3/(0.09-0.07)
= 150 million
Price per share = value/number of shares
= 150/1.1
= 136.36
choose D)
Sultan Services has 1.1 million shares outstanding. It expects earnings at the end of the year...